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New UK Stewardship Code
Practical Law UK Legal Update 6-502-9340 (Approx. 3 pages)
This article is part of the PLC Global Finance July 2010 e-mail update for the United Kingdom.
Speedread
At the beginning of July, the Financial Reporting Council (FRC) published the UK Stewardship Code for institutional investors. The aim of the Stewardship Code is to improve the quality of corporate governance through promoting better dialogue between institutional investors and the companies in which they invest.
At the beginning of July, the Financial Reporting Council (FRC) published the UK Stewardship Code for institutional investors.
The aim of the Stewardship Code is to improve the quality of corporate governance through promoting better dialogue between institutional investors and the companies in which they invest. It sets out good practice on engagement with investee companies to which institutional investors should aspire and, as with the UK Corporate Governance Code, is to be applied on a "comply or explain" basis.
All institutional investors are encouraged to report if and how they have complied with the Stewardship Code. Overseas investors who follow other national or international standards can "explain" the extent to which they have complied with the Stewardship Code through disclosures made in respect of those standards and UK institutions that apply the Stewardship Code are encouraged to apply its principles to overseas holdings.
In addition, the FRC encourages those who provide proxy voting and other advisory services to disclose how they carry out their clients' wishes by applying the principles of the Stewardship Code that are relevant to their activities.
The Stewardship Code sets out seven Principles and gives guidance in relation to each Principle. The Principles are as follows:
- Principle 1 - Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
- Principle 2 - Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed.
- Principle 3 - Institutional investors should monitor their investee companies.
- Principle 4 - Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.
- Principle 5 - Institutional investors should be willing to act collectively with other investors where appropriate.
- Principle 6 - Institutional investors should have a clear policy on voting and disclosure of voting activity.
- Principle 7 - Institutional investors should report periodically on their stewardship and voting activities.
Institutional investors are encouraged to disclose their compliance statements in relation to the Stewardship Code on their websites by the end of September and to notify the FRC when they have done so. From the beginning of October, the FRC will then maintain a list on its website of all those investors who have published a statement on their compliance or otherwise with the Stewardship Code.