Blog : BOARD TALK
|Posted on July 14, 2014 at 12:20 PM|
Summer may be flying by but the serious business of better corporate governance has not yet had time for a holiday.
In the UK, The Investor Forum has now formally launched with with the appointment of Simon Fraser as Chairman, and Andy Griffiths as Executive Director.
Mr Fraser was formerly Chief Investment Officer of Fidelity Worldwide Investment. He is currently Chairman of Foreign & Colonial Investment Trust plc. and a non-executive director (NED) of Ashmore Group plc. He is a former NED of Barclays PLC. Mr Griffiths has 20 years’ experience as a top rated Research Analyst and investment professional at Capital Group, where he had specific responsibilities for investments in European banks and international equities. cxz`
The Forum is being formed following the recommendations of the Collective Engagement Working Group (a group established by the ABI, IMA and NAPF) and the Kay Review. As an investor-led organisation, its governance is independent of any trade association.
Importantly, the Investor Forum will be open to all investors who have an interest in UK companies, whether based in the UK, or overseas.
The detail is being worked out, but its participants will be asset managers and asset owners such as pension funds, life assurers and sovereign wealth funds. Its launch is intended, as Mr Fraser put it to "help facilitate better engagement between UK public companies and their shareholders to support long-term value creation opportunities."
There has been real drive behind this launch from multiple fronts. Issues around short-termism in investment and a need for cultural change throughout the investment chain have propelled this initiative forward.
One of the Investor Forum's key aims is the forming of engagement groups to "drive constructive change when there is a critical mass of support among Forum participants that a company is failing in some way that might compromise long-term returns." That sounds very much like a 'raising the bar' form of collective engagement. It may come just in time.
For there has been considerable shareholder discontent expressed recently around remuneration, with Burberry the latest to feel the wrath on executive pay. At its AGM last week 52% of shareholders voted not to support the remuneration report.
In its Global Outlook Third Q2014, Standard Life Investments, the global investment manager, says "It is interesting there has been as much shareholder upset with the backward-looking remuneration reports as there has been for forward-looking policies." Indeed. It is a sign of much greater levels of awareness and attempts at engagement between individual investors and publicly listed businesses.
As Standard Life also points out, causes of discontent on pay include "the use of wide discretionary powers for remuneration committees, the lack of disclosure of performance measurement targets, and inappropriately high rewards for threshold performance."
The Investor Forum will doubtless be hoping all engagement is not around pay. Sacha Sadan, chairman of its implementation team and Director, Corporate Governance at Legal & General Investment Management, has spoken in the past about the need to broaden the focus of engagement.
As most company remuneration policies only need to come back to the AGM every three years, there is also a risk of bubbles of activity, with less engagement in the intervening years.
But Mike Everett, director of Governance & Stewardship, Standard Life Investments says :"The new binding vote on pay has encouraged engagement by companies and we hope that this will continue in years to come on broader topics such as values and business practices, audit quality and succession planning.”
Succession planning in particular is beginning to resonate through the minds of more than a few institutional investors.
The launch of The Investor Forum can only be a good thing if it fosters better communication.
Keeping the conversation going more broadly is the FRC conference later this week: Long-Termism, Stewardship & Growth: Are Markets Meeting The Challenge . You can read the provocation paper for it here.