Key themes of board independence, board time and attention, investment manager tenure and discount management are all highlighted in chapter 7 of the 21st edition of the Shareholder Voting Guidelines published by Pension & Investment Research Consultants (PIRC). As might be expected, the views of Europe’s largest independent corporate governance and shareholder advisory consultancy1, as expressed in the Guidelines, look beyond current corporate governance requirements and standards as set out in, for example, Chapter 15 of the Listing Rules and the AIC Code of Corporate Governance. 

Below we summarise PIRC’s Guidelines, as they apply to investment companies, and compare them to related provisions of the Listing Rules and the AIC Code.


Both the Listing Rules and the AIC Code (the latter, it should be remembered, applying on a “comply or explain basis”) state that a majority of the board of an investment company, including the Chairman, must be independent of the external investment manager (or the executive function in the case of a self-managed fund). 

Directors linked to the investment manager

PIRC “considers that no person with current or recent links to the investment manager or [its group] should be a director of [an investment company]”.

While it is becoming less common to have a representative of the investment manager on the board of a listed investment company, the practice does still continue.  Such a person would not be precluded under either the Listing Rules or the AIC Code from being a director of a listed fund but would not, of course, be considered independent.  The AIC Code notes that some shareholders may “expect no more than one current or recent employee of, or professional adviser to, the manager to serve on a board.”  The AIC Code also suggests that the board may wish to consider whether such a director should be subject to annual re-election by shareholders.

Other factors affecting independence

PIRC identifies long tenure as a risk to independence and notes the need to balance the composition of the Board accordingly.  

The AIC Code notes that some shareholders and commentators perceive a link between length of tenure and a lack of independence but states that the AIC “does not believe that there is any evidence that this is the case for investment companies and therefore does not recommend that long-serving directors be prevented from forming part of an independent majority”.  The AIC Code does require a board to state in the fund’s annual report its reasons for considering that a director with tenure of more than nine years remains independent.  


PIRC considers that the entire membership of the audit and management engagement committees should comprise independent directors.  

This is consistent with the provisions of the AIC Code.  The AIC Code notes that in some cases the Audit and Management Engagement Committees comprise the whole board and recommends that in those cases the relevant board give the reason in the annual report (typically, this is because of the small size of the board).  As regards the Management Engagement Committee, regardless of whether this comprises the whole board, the AIC Code states that only those directors independent of the investment manager should be involved in reviewing the investment manager’s performance and contractual arrangements.


According to the Guidelines, there is evidence that some boards are delegating to the investment manager matters that should be within the board’s remit, which is resulting in shareholders (or PIRC on their behalf) having to raise concerns with the investment manager, rather than the board.  PIRC’s position on this is that “where there is inadequate access to the board’s view on a matter for which the board is expected to have responsibility, PIRC will not support a vote to approve its report and accounts.”

Time, attention and competency

PIRC notes the need for the board to expend time and effort, presumably over and above the time spent reading board papers and attending meetings, into “maintaining sufficient knowledge to challenge a manager’s views of its own investment performance, of its benchmark index selection, of its peer group selection.”  The board should also understand the discount, ongoing charges and the available discount control mechanisms (matters also addressed in the AIC Code).  

Steps that could be taken by directors to improve and maintain their knowledge include following peer group activity and new issues, and reviewing sector statistics, as well as maintaining a healthy dialogue with investment company’s other service providers.

PIRC considers directors with more than four directorships to be at risk of having insufficient time to devote to each role. There is currently much comment and regulatory focus on the number of directorships that a single individual should be allowed to hold.  While the trend outside the investment fund space may be said to be towards limiting the number of positions that may held by an individual, regulators in a number of jurisdictions have informally expressed a preference to avoid hard limits on the number of investment fund directorships an individual may hold, since the question of “how many is too many?” will vary according to the circumstances.

Neither the Listing Rules nor the AIC Code recommends hard limits on the number of board positions that a single individual may hold.  The AIC Code does require boards to provide feedback in the annual report on the number of board and committee meetings held during the year and the number of meetings attended by each director.

One effect of limiting the number of positions held by an individual director may be to increase that individual’s reliance on the income from any single directorship, thus presenting obvious potential conflicts of interest for directors considering continuation votes, liquidations and rollovers.

Directors holding multiple positions should be conscious of current trends on effective oversight and be ready to demonstrate objectively their commitment to the investment companies on whose boards they serve.

Contractual relationship with the manager

PIRC considers that a three-month notice period should be sufficient for external investment managers.  

In our view three months is on the short side, particularly given that most tender processes to appoint a new manager take longer than three months – more like six months from start to finish.  Investment managers are also likely to seek reciprocity of notice periods.  For many investors, the prospect of the investment manager being able to terminate its mandate on three months’ notice may be unattractive.  This will particularly be the case where the underlying investment class is specialised and illiquid – for example for infrastructure and renewable energy funds.  These types of fund may be better able to justify longer notice periods.

Neither the Listing Rules nor the AIC Code contains any particular requirement regarding the preferred notice period for an external management agreement.

Performance fees

The Guidelines express PIRC’s position of not supporting performance-related pay for managers.  

The Listing Rules are silent on performance fees. The AIC Code notes that, in reviewing existing performance fees or considering the introduction of new performance fees, the board should have regard to a number of factors generally aimed at ensuring that the performance fee structure does not encourage excessive risk and that it rewards demonstrably superior performance by the investment manager.  

The current trend in any event seems to be away from performance fees. This may be due to a combination of investor feedback and the need to offer clear and competitive fee structures in order to be able to compete in an RDR world.

Continuation votes

The Guidelines make the obvious point that decisions about seeking continuation votes should be made with the interests of shareholders in mind and without regard to self-interest on the manager’s part.  This is consistent with the requirements of company law and the AIC Code.

Dividend approval

The Guidelines address PIRC’s concern that shareholders in some listed investment companies are not being given the chance to vote on final dividend payments. This situation typically arises where investment companies offer regular interim dividend payments and no final dividend payment, thus bypassing the shareholder approval process. The justification for this approach is that it allows investment companies to offer a fixed and regular timetable for payment of dividends, which would not be possible if the timetable had to take account of the annual reporting and AGM cycle.  

The Guidelines express PIRC’s view that an investment company’s reporting cycle should be capable of being managed so as to allow for both certainty and shareholder approval.  PIRC regards the absence of an annual vote to approve dividend distribution as “a failure to maximise shareholder rights”.  

Discounts and share capital authorities

PIRC considers that “a persistent and significant discount without evidence of formal action to address it is an indicator of governance concerns”.  This is broadly consistent with principle 17 of the AIC Code, albeit expressed in a slightly tougher way.  The AIC Code states that “Boards should monitor the level of the share price discount or premium (if any) and, if desirable, take action to reduce it.”

PIRC notes that resolutions to disapply pre-emption rights or to buy shares into treasury for subsequent reissue should be regarded with caution where boards permit shares to be issued at a discount to NAV.  

The AIC Code is silent on issuing shares at a discount to NAV, perhaps because the Listing Rules require shareholder approval for non-pre-emptive issues of shares for cash at below NAV.

Other issues


PIRC believes that investment companies should have their own, disclosed, policies on social, environment and ethical issues in their portfolio companies, regardless of whether the investment company has a particular ethical investment mandate.  

Investment companies that invest in public equities should have an institutional voting policy and should publicly disclose their voting record.  The implication is that this policy and disclosure should be separate from that of the investment manager. 

The AIC Code recommends that a board should agree a policy with the investment manager regarding voting and corporate governance issues in respect of holdings in the company’s portfolio, taking account of the UK Stewardship Code, but does not go so far as to recommend that the board should develop a position on wider matters of corporate social responsibility at portfolio company level.


PIRC does not consider that there should be any discretion over savings scheme voting rights or that voting rights attaching to savings scheme shares should be counted differently at general meetings.


The independent board of an investment company, whose role is to supervise the investment manager and focus on the needs of shareholders, is one of the key attractions of the listed fund model.  

The industry is undergoing significant change at the moment as it grapples with European Union rules that are not designed primarily with the listed investment company model in mind and consequently tend to bundle listed funds with other, manager-led, products.

The Guidelines are a useful reminder of the importance attached by investors to governance issues and the need for Board to supervise the manager in a constructive but challenging way.