The heads of among the UK’s largest listed corporations have warned that relations with their institutional traders have deteriorated markedly, with “box-ticking” workouts over stewardship now risking firm progress.
The State of Stewardship report, compiled by PR and lobbying group Tulchan, highlights quite a lot of downside areas, together with what many chairs noticed as a blurring of duties between the 2 sides that’s creating pointless distractions for boards.
Some chairs stated this, compounded by an “ever-increasing thicket of government regulation”, was contributing to the decline within the variety of listed corporations within the UK.
Interviews with 35 named chairs of FTSE corporations — together with 26 from the FTSE 100 — revealed deep frustration with their institutional shareholder relationship, with the heads of the UK’s main corporations calling for a reappraisal of how they work collectively.
Those interviewed included Abrdn’s Sir Douglas Flint, Paul Manduca of St James’s Place, The Sage Group’s Andrew Duff, HSBC’s Mark Tucker, Sir Donald Brydon of Tide Holdings and Annette Court of Admiral Group.
Other chairs who participated within the report have been Anglo American’s Stuart Chambers, Cressida Hogg of Land Securities and Don Robert on the London Stock Exchange.
The report additionally warned that engagement with shareholders about technique and efficiency was being eclipsed by a mechanical “box-ticking” course of, the place traders vote on board resolutions “based on detailed, prescriptive rules on matters not always central to companies’ long-term success”.
Chairs argued traders ought to as a substitute delegate duty to boards because the stewards of corporations’ long-term success.
Some pointed to the discretion in board decision-making set out in UK company governance codes underneath the “comply or explain” regime having been eclipsed by a “narrow and sometimes adversarial focus on compliance”.
The chairs of quite a lot of FTSE 100 corporations initiated the survey given their sense of frustration at what they noticed as a decline within the high quality of engagement with their key shareholders in recent times. Many emphasised that they noticed a variety of high quality in engagement with their shareholder base from excellent to deeply irritating.
Many additionally complained in regards to the tendency for shareholders to make use of third-party proxy voting companies to “outsource” voting choices on board resolutions. Chairs known as for proxy voting companies to fall underneath an formally supervised code of conduct.
There was additionally a typical confusion over the proliferation of ESG requirements and scorecards towards which corporations should report, and a need for better investor consistency on this space.
Quite a few institutional traders have been additionally interviewed to answer these issues, together with Richard Buxton at Jupiter Fund Management and Schroders’ Andy Simpson.
Investors didn’t agree with most of the particular criticisms voiced by chairs, however recognised there have been points to debate, and agreed that shareholder interactions with UK corporations had modified in recent times.
This was partly owing to the declining share of funding portfolios allotted to UK equities, the report discovered, and the ensuing decline in assets and time dedicated to partaking with portfolio corporations.
The report requires a dialogue between a consultant group of plc chairs and an analogous group of institutional traders, “with a view to clarifying points of contention and seeking common ground”.
Mark Burgess, companion at Tulchan Communications, stated: “With ever greater governance requirements being placed on fewer and fewer institutional resources, it is not surprising that engagement is no longer working effectively. A reappraisal — along with a greater pension fund allocation to UK equities — is needed.”
Source: www.ft.com