The UK’s Institutional Shareholder Committee (ISC) has issued as pre-emptive strike against potential legislation from the Walker Review with the publication of a voluntary code of conduct for its members. The “Code on the Responsibilities of Institutional Investors” outlines seven principles of shareholder engagement and stewardship which, like the Combined Code, will be applied on a “Comply-or-Explain” basis.
The ISC is a forum of four trade associations: the Association of British Insurers; the Association of Investment Companies; the Investment Management Association; and the National Association of Pension Funds. The body has come under considerable pressure from the British government, particularly from Lord Myners, the City Minister, for not being sufficiently pro-active on governance issues. His response to the ISC’s proposals has been typically robust stating that the ISC’s proposals “still advocates self-governance, which has been show to have failed.”
Speaking the NAPF’s annual conference this March, Myners called for a strengthening of his 2001 proposals for a legal duty on governance saying it was “probably the only one not followed up”, and he claimed his proposals had been “watered down by the ISC”. Although Myners said he accepted the ISC as a “compromise”, he argued “it hasn’t really achieved anything”. In the Q&A’s after his speech he confirmed “I will be asking [Sir David] Walker to look at it again in his review as we need to hardwire governance into contracts”.
The ISC has clearly taken Myner’s firing shots on board. Under the leadership of Keith Skeoch, CEO of Standard Life, and Lindsay Tomlinson, chairman of the NAPF and vice-chairman of Barclays Global Investors, Europe, the ISC has made a commitment to re-examine its constitution and consult with representatives from senior investors, and corporate governance practitioners to ensure that it is “fit for purpose in the new environment”.
Judging from the public responses to the Walker Review, the proposed ISC Code is unlikely to satisfy many market participants. There has been a strong lobby supporting of Sir David’s proposals for a new “Stewardship Code” to be managed by the Financial Reporting Council, the current home of the Combined Code. Independent ownership of the Stewardship Code is seen by many as ensuring a clean break with the past and promoting a more inclusive and transparent approach to share ownership.
The question now will be, has the ISC left it too late to keep the principles under its own wing? The City will not have long to wait – Walker’s final recommendations will be announced on November 26th.
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Code on the Responsibilities of Institutional Investors >>
The code is just a reshuffle of the current statement of principles, with a couple of extra bells and whistles – so not much to change then!?
If Myners is serious about promoting integration and effecting change here, then he shoudl also look to tackle other structural barriers to responsible long-term investment (e.g. benchmark effects, quarterly performance focus, misaligned incentives, etc)…….