Institutional Investors to be more transparent

Friday, February 12, 2010 | Posted by: Grant Thornton
Categories: Governance | Tags: FRC, governance, stewardship code, institutional investors

The Financial Reporting Council (FRC) has set its sights on improving the transparency of engagement between institutional investors and investee companies through its recently published consultation paper.

Active share ownership is a fundamental principal in UK governance and the Stewardship Code aims to enhance the quality of the dialogue of institutional investors with companies to help improve long-term returns to shareholders, reduce the risk of catastrophic outcomes due to bad strategic decisions and help with the efficient exercise of governance responsibilities.

For the beneficial owners of shares and the wider public, the Stewardship Code is an important development but what is the benefit to institutional investors? This is an important question for the Financial Reporting Council to answer as the Stewardship Code will only be successful if institutional investors fully support it

More importantly, what is the benefit to UK institutional investors?  More than 40% of shares in the UK are owned by foreign investors and whilst the draft Stewardship Code encourages foreign investors to adopt the Stewardship Code, they must see the benefit in doing so. Without support from foreign investors, the Stewardship Code might inadvertently create a commercial disadvantage to UK institutional investors

We recognise the importance of good dialogue between the auditor and institutional investors to good governance, yet the Stewardship Code misses the opportunity to enshrine the dialogue set out within the Audit Firm Governance Code within the Stewardship Code. In our view, this is an unfortunate omission.

The FRC has asked for views from stakeholders on the Stewardship Code by 16 April 2010 and we would like to hear your views as we set about responding to the consultation. .(JavaScript must be enabled to view this email address) or leave us a comment below