Frank Curtiss writes: Current changes to the UK stewardship regime offer asset owners in the UK and elsewhere the opportunity to shape the landscape of responsible share ownership. As someone who has worked in the pensions sector for more than 20 years, I believe it is time that asset owners took a clear leadership role in the stewardship debate. Specifically I call on pension funds exposed to “UK Plc” – that means funds inside and outside the UK – to endorse publicly the new UK Stewardship Code.
This non-mandatory Code, adopted in July 2010 by the Financial Reporting Council (FRC, the UK’s independent regulator responsible for promoting high quality corporate governance and reporting), sets out seven principles on good stewardship by shareholders. The Financial Services Authority (FSA, the UK’s financial regulator) is considering a requirement for FSA-regulated asset management firms to make a public statement of compliance (or explanation of non-compliance) with the Code.
Significantly, the FSA regulation is not intended to catch asset owners, overseas investors and others not regulated by the FSA. However, along with the FRC and many others I believe that the Code will only be successful if asset owners and managers alike take it seriously. I know from personal experience – my own and that of colleagues in all parts of the investment system – that pension funds and other owners can have a significant impact on the quality and quantity of engagement with companies. They should make clear what level of stewardship they expect from asset managers.
Hence I call on asset owners from the UK to follow the FRC’s call to issue voluntarily statements of compliance with the Code. They may not be able to do so by 30 September (as suggested by the FRC), as some funds need to put this through their formal decision-making process. But in the meantime they may find other ways to endorse the Code. The FRC will publish a list of supportive investors in October and no doubt the media will pick up on wider informal sentiment. Asset owners should also encourage their fund managers to make compliance statements.
The UK Stewardship Code and the proposed compliance regime provide asset owners with a valuable manager selection and monitoring tool: where fund managers were previously held accountable for stewardship on a private basis, the proposed compliance statements would be public, and managers could be held accountable not only by current, but also by prospective clients.
This regime is focused on the UK, and the compliance requirement only applies to UK fund managers. But much of the UK equity market is owned by investors from outside the UK, and I therefore urge asset owners globally to support the UK Stewardship Code.
Regulators elsewhere are also considering the possibility of introducing shareholder codes to improve stewardship. Ideally there will be mutual recognition between codes in different markets, creating a system that can cope with local practice whilst acknowledging certain global standards. I think this is of interest to asset owners globally, and it can be achieved if a critical mass of asset owners takes action. Our end beneficiaries deserve nothing less.
Frank Curtiss is Head of Corporate Governance at rpmi RAILPEN Investments, the investment management and monitoring arm of the Railways Pension Trustee Company, the trustee of railway industry pension funds in Great Britain. <link to participant profile>
This article is part of our NSFM opinion series, in which participants propose specific steps towards real and sustainable market reform. NSFM participants are invited to contribute to the series. Please contact Ebba Schmidt or Frank Jan de Graaf for further information.
