IMA survey on commitment to the Stewardship Code contains accounts of how investors engaged with high-profile companies on governance questions
The Investment Management Association published on 24 May 2011 a detailed survey (the Survey) on adherence by institutional investors to the Financial Reporting Council’s Stewardship Code (the Code). The 41 asset managers who responded to the Survey managed £590 billion of UK equities – representing 31% of the UK market – as at 30 September 2010, the Survey period end date. The Survey can be accessed here.
The Code was introduced by the Financial Reporting Council (the FRC) in July 2010 and aims, in the FRC’s words, “to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities by setting out good practice on engagement with investee companies to which the FRC believes institutional investors should aspire”. The Code can be accessed here.
Principal results of the Survey
- Voting: Close to 80% of respondents exercise 100% of the votes attached to their UK equity holdings and a further 12.5 per cent vote between 75% and 100%. Voting levels are less in overseas markets, with share blocking being the most common obstacle to voting overseas holding.
- Resources devoted to stewardship: 43 respondents have a total of 1,300 employees “involved” in stewardship. Although at first sight that figure looks very high – implying that an asset manager employs on average 30 people on stewardship – the detail in the Survey shows that the 1,300 figure includes portfolio managers and analysts. The total number of stewardship “specialists” at the 43 respondents is in fact 170.
- Monitoring: On average the asset managers surveyed hold shares in around 450 UK companies. Two thirds of respondents monitor, and just less than half engage with, all their investee companies as part of their investment process.
- Adherence to the Code: 43 of the 50 respondents had published a statement of adherence to the Code at the Survey date. On 6 December 2010 the FSA introduced a new “comply or explain” rule requiring UK-authorised asset managers to produce a statement of their adherence to the Code and place it on their website, or explain their alternative investment strategy.
Examples of governance engagement
The Survey contains six detailed accounts of how investors engaged with leading companies over stewardship issues. This is the most interesting part of the Survey, describing the contact between asset managers and:
- Marks & Spencer on the appointment of Stuart Rose as both chairman and chief executive.
- Tesco on the remuneration of US executives.
- Barclays on capital raising proposals.
- Lloyds Bank on the acquisition of HBOS.
- Royal Dutch Shell on the Canadian oil sands project.
- Prudential on the proposed acquisition of AIG’s Asian operation.
The Survey also discusses “barriers to stewardship”, the most cited of which is resources, followed by size of holding (limiting the ability to influence), concerns over acting in concert and insider information, lack of client authority to vote and differing opinion amongst portfolio managers.
The Survey will be used as a benchmark for future surveys.
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