A new report by the Association of British Insurers (ABI), “Improving Corporate Governance and Shareholder Engagement”, considers the different roles and responsibilities of all of the principal elements within the governance of, and stewardshipn in relation to, quoted companies, with particular focus on constructive challenge by non-executive directors, the variety of approaches taken by institutional investors to hold companies to account and ensure that they are run in the long-term interests of shareholders, and the relationship between, and the different responsibilities of, asset managers and asset owners.
The report provides an overview of the various participants in corporate governance and the roles they play. The report also sets out a number of recommendations, including:
- Corporate governance reporting by companies must focus more on the application of the Principles of the UK Corporate Governance Code (the Code) rather than just compliance with Code Provisions.
- All companies should adopt a Chairman’s introductory statement to the corporate governance section of the annual report and the Financial Reporting Council should consider making this a Code Provision.
- Companies are encouraged to review the time-commitment requirements of different non‑executive roles and consider whether changes might result in better stewardship.
- Companies are encouraged to consult their largest shareholders on major board appointments and improve Nomination Committee reporting in the annual report and accounts.
- Non-executive directors should meet as a group without executive directors to consider transactions and confirm to the Chairman, prior to the publication of any circular or recommendation to shareholders, that they are satisfied they have had sufficient time and received enough information.
- Boards are encouraged to be more demanding of the formal flow of information they receive.
- Companies should develop a transparent annual investor relations programme that includes the intended schedule and type of one-to-one and group meetings it intends to hold to discuss corporate governance and stewardship-related issues. Non-executive directors should attend a selection of investor-relation presentations.
- Differentiated voting or dividend rights are best avoided, as they are likely to result in a number of unintended consequences and affect the interests of minority shareholders adversely rather than stimulate longer-term ownership.
- There is no need to change existing ownership thresholds for requisitioning general meetings and proposing shareholder resolutions.