The Financial Reporting Council (the "FRC") has published a new Stewardship Code which aims to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities.
The Code is addressed in the first instance to firms who manage assets on behalf of institutional shareholders such as pension funds, insurance companies, investment trusts and other collective investment vehicles. The FRC expects those firms to disclose on their websites how they have applied the Code. Institutions that manage several types of fund need to make only one statement.
However, the FRC strongly encourages all institutional investors to report if and how they have complied with the Code. The FRC recognises that not all parts of the Code will be relevant to all institutional investors, while smaller institutions may judge that some of its principles and guidance are disproportionate in their case. In these circumstances, they should take advantage of the ''comply or explain'' approach and set out why this is the case.
From October 2010, the FRC will retain on its website a list of those investors that have published a statement on their compliance or otherwise with the Code.
The seven principles of the Code require that institutional investors should:
- publicly disclose their policy on how they will discharge their stewardship responsibilities;
- have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed;
- monitor their investee companies;
- establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value;
- be willing to act collectively with other investors where appropriate;
- have a clear policy on voting and disclosure of voting activity; and
- report periodically on their stewardship and voting activities.
For further information see: www.frc.org.uk/images/uploaded/documents/UK%20Stewardship%20Code%20July%2020103.pdf