Thursday, 25 May 2017

    Plans for an investor forum gathers pace as shareholder activism hits the headlines

    Pension funds must lead the charge to get better value for members and business

    It is nearly a year since Professor John Kay published his damning review of UK equity markets. His main argument was that short-term incentives were enriching financial intermediaries at the expense of listed firms and investors with long-term horizons.

    The report recommended the establishment of an investor forum, “to facilitate collective engagement by investors in UK companies”. The idea was somewhat overlooked at the time, but has been thrust into the spotlight as triennial valuations reveal the devastating impact of low gilt yields on pension fund deficits.

    Three lobbying giants, the National Association of Pension Funds, the Investment Management Association and the Association of British Insurers announced at the end of March they were joining forces to advance the investor forum concept. A working group is due to report on the practical implications of a forum by the autumn.

    Speaking at corporate governance group PIRC’s annual conference, London Business School executive fellow David Pitt-Watson said long-term asset owners would have to be the “overwhelming voice” in any new forum.

    This has been done before and hasn’t altogether succeeded

    “This has been done before and hasn’t altogether succeeded,” RPMI’s head of corporate governance Frank Curtiss told Pensions Insight. “If I read Kay’s report correctly, he suggests this might have been because the trade bodies were too closely involved. He calls for an investor forum independent of them, but I think the trade bodies have a role.”

    However, several questions are unanswered. Will a forum give long-term investors the platform they need? Will it be influential enough? How will a forum ensure its voice is not watered down by existing shareholder groups? How will it address the issue of foreign investors in the UK?

    If there are to be big battles it will be next year, but the more sensible companies will take the view that they don’t want to be one of the first to lose a binding vote

    2013 is a decisive year for corporate governance in more ways than one. From 2014, listed companies will have far less leeway on executive pay as the Enterprise and Regulatory Reform Bill passes into law. Shareholders were handed a ‘binding vote’ on executive pay as part of business secretary Vince Cable’s response to Kay’s review.

    “I think the impending changes to shareholder power is concentrating minds,” said RPMI’s Curtiss. “If there are to be big battles it will be next year, but the more sensible companies will take the view that they don’t want to be one of the first to lose a binding vote.”

    Standard Life gave FTSE giant BP a reality check by voting down pay policy

    Institutional investors have been flexing their muscles ahead of the new regulations.

    I should like the board to note that we have voted against or abstained on remuneration-related resolutions at seven out of the last eight AGMs

    Standard Life gave FTSE giant BP a reality check by voting down pay policy and the re-election of the remuneration committee chairman at the oil company’s AGM. Guy Jubb, global head of governance and stewardship at Standard Life Investments, said: “I should like the board to note that we have voted against or abstained on remuneration-related resolutions at seven out of the last eight AGMs.”

    BP responded that 94% of shareholders voted in favour of remuneration policy – the highest for seven years.

    Standard Life is considered a major BP shareholder, despite only holding 1.3% of shares, reflecting the unusually fragmented nature of UK share ownership. While this has the positive effect of preventing dominant investors from dictating the agenda, it can make collective action difficult and complicated. An investor forum should make tackling this problem one of its main aims. 

    As well as empowering shareholders, corporate governance lobby groups have begun targeting individual savers. Activist NGO ShareAction (formerly FairPensions) launched a web tool at the end of April allowing scheme members to directly ask their pension provider what steps they are taking to prepare for the impact on assets of climate change.

    As millions of new savers are auto-enrolled, grassroots engagement and media coverage of corporate governance are certain to grow.

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