In addition to the UK Stewardship Code, other guidance exists on how companies and investors can engage.
Section E of the UK Corporate Governance Code6 sets out best practice for companies’ relations with shareholders. Main Principle E.1 says: ‘There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place.’ The supporting principle says: ‘Whilst recognising that most shareholder contact is with the chief executive and finance director, the chairman should ensure that all directors are made aware of their major shareholders’ issues and concerns. The board should keep in touch with shareholder opinion in whatever ways are most practical and efficient.’
Provision E.1.1 adds: ‘The chairman should ensure that the views of shareholders are communicated to the board as a whole. The chairman should discuss governance and strategy with major shareholders. Non-executive directors should be offered the opportunity to attend scheduled meetings with major shareholders and should expect to attend meetings if requested by major shareholders. The senior independent director should attend sufficient meetings with a range of major shareholders to listen to their views in order to help develop a balanced understanding of the issues and concerns of major shareholders.’
Provision E.1.2 states that, ‘The board should state in the annual report the steps they have taken to ensure that the members of the board, and, in particular, the nonexecutive directors, develop an understanding of the views of major shareholders about the company, for example through direct face-to-face contact, analysts’ or brokers’ briefings and surveys of shareholder opinion.’
Other Code provisions are also relevant to shareholder relations in stating that companies should consult with major shareholders in certain circumstances. Examples are if the board decides a chief executive should go on to become chairman (code provision A.3.1) or where members of the board have cross-directorships or have served for nine years or more (code provision B1.1).
The requirements of the FSA Listing Rules and Disclosure and Transparency Rules7 covering the relations between companies and investors set out the circumstances in which a listed company must make announcements to the market. In some circumstances (for example, the company wishing to make a rights issue) shareholder approval will need to be obtained, and it is usual in such circumstances for companies to engage with major shareholders in advance to establish the level of shareholder support.
Read the next section:
Developing a guide to good stewardship engagement