Blog : BOARD TALK
|Posted on December 14, 2015 at 12:00 AM|
When the UK's corporate governance watchdog, the Financial Reporting Council (FRC) introduced The Stewardship Code five years ago in 2010, it was clearly relying on 'gentlemen being gentlemen.' (And no, there is no room here and no need for me to go off at a tangent around gender).
The Code has many converts - and I covered Stewardship and investors recently on Forbes.
It sets out a number of areas of good practice to which investors should aspire and operates - like all of UK corporate governance - on a 'comply or explain' basis.
But, today the FRC acknowledges that "over the past five years the quality and quantity of stewardship has improved but not consistently and transparently."
It is now introducing public 'tiering' of signatories to the Stewardship Code (from July 2016) to improve reporting against the principles of the Code and assist investors.
"Improved reporting will help asset owners judge how well their fund manager is delivering on their commitments under the Stewardship Code; help those who value engagement to choose the right manager; and in consequence should provide a market incentive in support of engagement" says the FRC.
To promote this commitment to stewardship, the FRC will assess signatories’ reporting against the Code and make public its assessment. This seems similar to the UK Government's action on gender diversity, when it repeatedly named and shamed those FTSE 100 plcs with no women on their boards, until all finally gave in and complied.
Signatories to the Stewardship Code will be assessed as being one of two tiers, says the FRC. Here they are:
Tier 1 - meeting reporting expectations in relation to stewardship activities. Additionally, asset managers will be asked to provide evidence of the implementation of their approach to stewardship. The FRC will look particularly at conflicts of interest disclosures, evidence of engagement and approach to resourcing and integration of stewardship; or
Tier 2 – not meeting those reporting expectations.
That seems pretty straightforward, and fair. I sense a shift towards toughness in the FRC.
It does say that before making a public assessment, it "will contact firms with feedback to allow time for improvements."
In the end, the FRC sees its work as all about encouragement on best practice in corporate governance, and 'raising the bar' - it says it encourages signatories "to engage with this process positively and be proactive in improving their reporting of stewardship activities."
“The Stewardship Code has helped to raise the profile of stewardship, normalised discussions about stewardship in the investment chain and led to improvements in the quality and quantity of engagement between investors and companies. We wish to maintain momentum by ensuring that signing up to the Stewardship Code is a true marker of commitment” says Sir Winfried Bischoff, Chairman of the FRC.