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Further Scrutiny: The Exact Impact Of The Stewardship Code

Posted on February 27, 2015 at 12:05 AM

In another indication of the difficulties in effectively implementing corporate governance codes based on 'principles' rather than 'rules', the UK Stewardship Code is  about to undergo  further scrutiny.


A steering group has been put together to undertake a survey to find out to what extent the Stewardship Code has begun to have an impact on company and investor engagement.


It is working with the 2020 Stewardship Working Party - made up of five institutional investors - Aviva Investors, BlackRock, GO Investment Partners, RPMI Railpen and USS and Tomorrow's Company.


The steering group has sent a survey to 1,000 company representatives to see what they have to say about whether or not the Stewardship Code has improved engagement. Findings are expected to be published by June 2015.


This steering group is composed of ICSA (whose software arm sponsors this blog), the NAPF, The Investment Association, the Investor Relations Society and the Quoted Companies Alliance. Its work is supported by the Financial Reporting Council (FRC), which is responsible for the Stewardship Code.


Although there are 301 signed up members of the Stewardship Code, it is common knowledge that the number of signatories adhering to it in practice is limited at best. The FRC's director of corporate governance, David Styles, has repeatedly expressed concern on this matter - suggesting a possible "ultimate sanction" of striking off signatories who are merely paying lip service to it.


Th evolution of the UK's corporate governance codes assumes steps forward, signs of improvement, and a 'much more to be done' ethos going forward. It could be argued that this approach always results in incremental - and very slow-moving- reform.


Some of the UK's largest asset managers are also now calling for a 'kite mark' for investment groups that offer a quality service. According to the Financial Times, this idea has been floated by two big investment groups in response to a regulatory investigation into asset management stewardship.


In case you cannot access FT link above, the piece also quotes one head of corporate governance at a UK institution as saying that 'only about 30 institutions' of the signatories of the Stewardship Code are "doing the job properly."


It is clearly not  a homogenous universe of players. Old Mutual Global Investors, which has about £5bn of UK plc shares, recently said it would vote aginst the pay packages for directors at listed companies that have not shortened their notice periods to under a year by March 2016. Its head of UK stewardship and governance - Paul Emerton - argues that company directors have 12 month contracts, when most 'ordinary people' are given three months or less: a built-in recipe for payments for failure in performance.


According to the corporate governance code, notice periods for executive directors should be "one year or less." So companies could set their own limits - but as long as that upper limit is codified, being compliant is clearly the easier option. 


Until now, asset managers have not suffered the 'slings and arrows' of the financial crisis. But the tide seems to be turning. They are under greater scrutiny, both on their own pay - and on the ways in which they run their businesses. 


And just last week the Financial Conduct  Authority (FCA), the UK watchdog, found that only a small number of companies it surveyed in the industry had "comprehensive" controls in place against market abuse.








Categories: Stewardship, Investors, Accountability