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