New Stewardship Code: It’s Not Just About Compliance But About Good Governance

Stakeholders should be encouraged to use whatever rights and powers they may have to protect their own interests, says ACCA.

London, United Kingdom, April 18, 2010 --( A proposed new stewardship code for institutional investors has the potential to enhance the quality of corporate governance and to provide additional safeguards for the capital markets and the security of many people’s savings for pensions and investments, says ACCA (the Association of Chartered Certified Accountants) today.

In its official response to the Financial Reporting Council’s consultation on A Stewardship Code for Institutional Investors, ACCA agrees with the Council that the time is right to encourage major investors to make more constructive use of the influence that they possess.

ACCA adds that any additional encouragement that investors can be persuaded to give to companies to focus on long-term shareholder value will be a very helpful contribution to the achievement of good corporate governance.

Paul Moxey, head of corporate governance and risk management at ACCA, says: “The FRC’s consultation addresses many of the relevant issues and we support what it is trying to achieve. We would like to see more stress placed on the fiduciary responsibilities of institutional shareholders to those who entrust their money to them, and a greater focus on why exactly those investors might see more active engagement as being in their interests and the interests of their beneficiaries.”

Paul Moxey adds: “We do have an issue with some aspects of the proposed Code, for example the adoption of the term ’stewardship’ and the related suggestion that shareholders have ‘responsibilities’ – as opposed to rights - to engage with their investee companies. There is also the basic issue of whether the new Code can be effective in improving behaviour if there is to be no enforcement mechanism.”

“But the main aim of the proposed Stewardship Code is, rightly, to bring about more effective engagement by institutional shareholders with boards. The financial crisis has shown how much society can be adversely affected by companies’ activities. Regulation can not always be relied upon to protect stakeholders’ interests, so it is right that major stakeholders be encouraged to use whatever rights and powers they may have to protect their own interests.”

When it comes to shareholder value, ACCA says that because institutional shareholders invest money on behalf of millions of people, it must be appropriate that their approach is for the long term, and that this does not conflict with the other legitimate interests of society or the environment.

Paul Moxey concludes: “This is an excellent opportunity for institutional shareholders to contribute to the re-building of public trust in the business sector. The Code could go further in highlighting the benefits to shareholders of greater engagement on matters of concern to their fiduciaries and a wider range of stakeholders. But the key point is that major shareholders need to take an active interest in the affairs of their investee companies.

“If the Code is to make the desired difference, it must be seen by investor groups not so much as a new compliance exercise but as a facilitator of helpful engagement with the process of governance for the benefit of all concerned. We hope that this exercise will be received by them in this spirit.”

Hannah Smith
+44 (0)20 7462 8900