UK investors split on key Walker recommendations

Following the publication of yesterday’s final report on UK corporate governance in banks and financial institutions by Sir David Walker, former chairman of Morgan Stanley, Responsible-Investor.com took a sample of UK investor and fund manager reactions to the report, which the UK government says will be quickly implemented into legislation:
George Dallas, director, corporate governance, F&C Asset Management: “We are generally supportive of the Review’s Final Recommendations, which were broadly in line with the preliminary conclusions and recommendations that were presented this past July. We agree with the Review’s conclusions that board behaviours are more important than board structures, but that there is nonetheless scope to consider organisational and operational changes in the approach to corporate governance of financial institutions.

Moreover, we believe the Review addresses the right themes in terms of greater board effectiveness, more focus on risk management for financial institutions, and a risk-based approach to long-term remuneration planning. With regard to the role of institutional investors, F&C welcomes the introduction of a Stewardship Code as a means through which the standards of investor engagement are improved and made more explicit in investment mandates.
Alan MacDougall, managing director, Pensions & Investment Research Consultants (PIRC): “A sigh of relief will be almost audible amongst the UK’s banking community upon the publication of the final report of SirDavid Walker on the governance of UK banks and other financial institutions (BOFIs) in the wake of the greatest financial market crisis the UK has suffered in living memory. In the face of the almost total collapse of the UK’s banking system in September 2008, the Walker report fails to take the radical steps needed for reform of our financial market governance. The public and many of our pension fund members and insurance services clients have a right to expect more. The failure to exercise fiduciary responsibilities by board directors of BOFI companies, asset managers supposed to be acting in their beneficiaries’ interests and our market regulators, has been ignored by the report. Virtually everyone who bears some responsibility for the crisis has been let off the hook. A slap on the wrist has been administered and the foundations of our current financial market system have been barely been touched.”
Raj Thamotheram, senior adviser, responsible investment, Axa Investment Managers: “Having watched this debate for 10 years, I am much less interested in the policy minutae and much more interested about what in practice the UK Government and its regulators, notably the FSA in this case, are willing to do to nudge the system into the new paradigm. What is certain is that just working in the old ways and through the old alliances and networks will not deliver the desired change, however much jawboning happens. We have a well respected CEO of a leading bank speaking openly of casino capitalism so clearly we face a big challenge! Neither regulators nor institutional
investors have come out of this crisis too well so far. Perhaps working together – not least because institutional investors naturally focus on transnational and regional dynamics – we can together achieve the change that’s so urgently needed.”

Mark Goyder, founder director of Tomorrow’s Company:
“I give Sir David 7 out of 10 overall but only 4 out of ten for stewardship. Overall he has created a platform on which we could move the stewardship of companies forward. He has at least got institutional investors to acknowledge that they have stewardship obligations and to say whether these are being exercised. But we need to be more radical if are to have real impact on the problem of ‘ownerless corporations’ identified by Lord Myners. The new ISC “stewardship” code is reactive, not proactive, and there is no join made yet that systematically involves major investors together in ensuring that the board of a company is the right board and tackling the right issues.”
Daniel Summerfield, co-head of responsible investment at the Universities Superannuation Scheme: “USS is broadly supportive of the recommendations being put forward by Sir David Walker. We believe that they strike a delicate balance between being overly prescriptive and allowing for appropriate flexibility, which should encourage best practice and avoid box-ticking conformity. USS has long advocated the need for the fund management industry to ‘up its game’ in the area of shareholder engagement and is therefore supportive of the recommendation for the principles of stewardship to be turned into a code with an appropriate monitoring mechanism. It is now up toboards and shareholders to respond positively and constructively to Walker’s recommendations if we want to avoid any further regulatory interference in this area.”
Penny Shepherd, chief executive, UK Sustainable Investment and Finance Association (UKSIF): “Walker has taken significant steps towards encouraging commercial incentives for high quality stewardship by asset managers compared with his draft report, but we now need a stronger focus from The Pensions Regulator, investment consultants and others for this to become a key factor in awarding mandates.”
Liz Murrall, director of corporate governance at the Investment Management Association (IMA): “We welcome his focus on enhancing the behavioural aspects of the conduct of a board’s business, rather than imposing more rules and regulations. We recognise the importance of good governance and stewardship in ensuring a sustainable and stable financial system and that investors have an important role to play and need to be more effective in the future. But it should not be presumed that adherence to the Stewardship Code is best practice for managing money and we welcome the Review’s ‘comply or explain’ approach to this. Over the last six years IMA has monitored investors’ engagement with its regular survey. We support Sir David’s Recommendation that such an approach should continue in the future under the guidance of the Financial Reporting Council. It also remains to be seen whether investors will be sufficiently comforted by the FSA and Takeover Panel’s guidance on issues around the concert party rules and market abuse to increase their engagement with companies as anticipated by the new recommendation in this area.”