The Institute of Chartered Secretaries and Administrators ('ICSA') in conjunction with the Investor Stewardship Working Party has launched a consultation in October on improving engagement practices between companies and investors.
This is the next step in a process begun by the publication of the UK Stewardship Code by the Financial Reporting Council in July 2010 (revised in October this year), which sets out the principles of effective stewardship by investors. This was followed by clarification of what was meant by better investor stewardship in a report published in March this year entitled '2020 Stewardship – improving the quality of investor stewardship' which was put together by a group of six institutional investors supported by Tomorrow's Company (the 'Working Party'). In July this year the Kay Review of UK Equity Markets and Long-Term Decision Making was published which further reinforced the view that improving stewardship is important and that investors should focus on long term engagement to help create value.
The Working Party took soundings from a number of company chairmen and other company representatives and made recommendations. It then asked ICSA to set up a steering group to develop two of the recommendations:
- The creation of a simple guide to good engagement practices with a view to encouraging more productive meetings
- to help companies and institutional investors find more ways to seek feedback on the quality of meetings with a view to their making changes to practice which will improve the quality of meetings.
A Steering Group was established in July under the leadership of Sir John Egan to develop a good practice guide to supplement the guidance in the Stewardship Code. Having considered the Kay Report and the revised Stewardship Code, the Steering Group concluded that the process of holding engagement meetings needs to be improved. The consultation paper seeks views on a number of points, including the following:
- whether guidance can help improve engagement practices and, if it cannot, what could be introduced to strengthen engagement
- whether the practical measures which the Steering Group have identified would improve the quality of meetings
- whether companies and institutional investors should seek feedback on the quality of meetings as part of the engagement experience
- whether receiving feedback directly from investors on engagement meetings might be more effective than receiving that feedback from the company's brokers or advisers
- whether the format proposed by the Steering Group for a company to provide feedback on investor meetings constitutes an acceptable basis
- whether respondents consider that by addressing these issues good practice engagement will be strengthened and what other mechanisms could be used
- whether the establishment of an Investors' Forum, as recommended by the Kay Review, to allow institutional investors to engage collectively with companies would be appropriate.
The consultation closes on 30 November and the Steering Group proposes to issue its guidance in March 2013.