$17trn group of US and global institutional investors launch US stewardship code

Major initiative unveiled for investor-corporate engagement for 2018 voting season

Some of the world’s leading institutional investors have got together to set up a multi-point US stewardship code.

Under the banner of the Investor Stewardship Group they have unveiled the ‘Framework for U.S. Stewardship and Governance’ after a two-year effort.

The group is calling on “every institutional investor and asset management firm” investing in the the country to sign up to the framework.

“A framework for promoting long-term value creation”

They are calling it a “historic, sustained initiative” to establish a framework of basic standards of investment stewardship and corporate governance for institutional investor and boardroom conduct. The framework features six fundamental principles for both investors and companies and is the latest ‘stewardship code’ since the first in the UK back in 2010.

The launch group, which has combined assets put at $17trn, includes the likes of BlackRock, CalSTRS and the Florida State Board of Administration (SBA) alongside international investors like Singapore’s state fund GIC, Legal and General Investment Management and PGGM (full list below).

The goal is to “codify the fundamentals of good corporate governance” and establish baseline expectations for corporations and their institutional shareholders, said Anne Sheehan, Director of Corporate Governance at the California State Teachers’ Retirement System.

The initial standards focus on corporate governance principles for listed companies and investment stewardship principles for institutional investors. “Taken together,” the investors say, “the standards form a framework for promoting long-term value creation for U.S. companies and the broader U.S. economy.”

The framework comes into effect on January 1 next year to give firms times to adjust in advance of the AGM voting season. Responsible Investor called for a US stewardship code just over two years ago.The Investor Stewardship Group:
Florida State Board of Administration
GIC Private Limited
Legal and General Investment Management
MFS Investment Management
MN Netherlands
Royal Bank of Canada (Asset Management)
State Street Global Advisors
TIAA Investments
T. Rowe Price Associates
ValueAct Capital
Washington State Investment Board
Wellington Management.

Stewardship Principles for Institutional Investors:

A: Institutional investors are accountable to those whose money they invest.
B: Institutional investors should demonstrate how they evaluate corporate governance factors with respect to the companies in which they invest.

C: Institutional investors should disclose, in general terms, how they manage potential conflicts of interest that may arise in their proxy voting and engagement activities.

D: Institutional investors are responsible for proxy voting decisions and should monitor the relevant activities and policies of third parties that advise them on those decisions.

E: Institutional investors should address and attempt to resolve differences with companies in a constructive and pragmatic manner.

F: Institutional investors should work together, where appropriate, to encourage the adoption and implementation of the Corporate Governance and Stewardship principles.

Corporate Governance Principles for Companies:

1: Boards are accountable to shareholders.

2: Shareholders should be entitled to voting rights in proportion to their economic interest.

3: Boards should be responsive to shareholders and be proactive in order to understand their perspectives.

4: Boards should have a strong, independent leadership structure.

5: Boards should adopt structures and practices that enhance their effectiveness.

6: Boards should develop management incentive structures that are aligned with the long-term strategy of the company.