The Steering Group took into account the detailed conversations held by the Working Party with company chairmen and others. From these dialogues, and drawing on their experience as institutional investors, the Working Party had identified the four challenges relating to both the quality and the quantity of current stewardship practices.

1. Quality of meetings

companies wanted:

  • meetings and engagement that were more purposeful and effective and gave a deeper account of the company
  • more access to investors
  • more in-depth discussion
  • fewer meetings that were ‘a waste of time’
  • better joint handling of issues that reached the media
  • better feedback on investors’ views when the meetings were over.

Companies said they were frustrated by investors who presented a divided face on company performance and governance issues.

2. Quality of information

There was a lack of information about the stewardship approaches of different asset managers, and a lack of comparability to help asset owners make informed decisions.

3. Resource limitations

The resources for stewardship were limited and the investment community was not making best use of those which it had. Index investors were a vital part of the market, and often had the desire and the capability to be stewards, but companies sometimes dismissed them as unimportant.

4. Critical mass


For the sake of beneficiaries and companies, the investment community needed to build a critical mass of stewardship investors who were capable of engaging companies in constructive dialogue and holding their boards accountable to shareowners.

 

The Steering Group also conducted its analysis in the context of the publication of the Kay Review and the revised Stewardship Code.

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The Steering Group noted, in particular, the Kay Review's support for effective stewardship and engagement, and its assertion that investors focused on engagement for the long-term provide the climate in which companies can focus on creating value, with greater confidence that the benefits of their decisions will be recognised (paragraph 5.32).

The Group concluded not only that improvements were needed to the process of holding engagement meetings, but that these should be accompanied by a ‘new conversation’ between companies and their owners.


The Steering Group was of the view that more effort could be made by both companies and institutional investors to improve on the quality of the engagement process:

  • The UK Corporate Governance Code already set out a clear framework of guidance which, if implemented in terms of the spirit, as well as the letter, would increase the confidence and trust of institutional investors.
    In applying the spirit of this guidance, the engagement conversation should be one which allowed companies to promote their business model, and explain their strategy, the performance of their key processes and value drivers, and how they would be developed over time in comparison with other companies, such that investors could draw conclusions about future financial performance with given market assumptions.

  • The regulatory framework already gave important governance tasks to investors which, if well done, would add value.

  • In addition, the institutional investor’s voice could add value through challenge – often with reference to the best practice evident in other companies, investors could articulate the behaviours and performance they required to enable them to be long term investors in a company.

  • Regular engagement would increase mutual trust so that bad news could be better understood when put into context in the light of continuing conversations between companies and their institutional investors in contrast to unexpected bad news presented by the media.


The Steering Group considered that these considerations were important, but that they were missing from many engagement interactions, and needed to be made more central to the dialogue between companies and their owners. By providing guidance on these issues, the Steering Group believes that both issuers and institutional investors will benefit by enjoying more productive meetings and higher-quality engagement.

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