Two days after the
Barclays vote, Citigate Dewe Rogerson, a media and investor relations
consultancy, revealed the results of its investor relations survey[1] and the findings are of
concern to those interested in responsible investment. The findings
indicate that an increasing number of European quoted companies say lack of
engagement from shareholders is creating a barrier to good corporate
governance. 55% of more than 100 companies indicated poor engagement was
a concern this year, up from 41% last year. Fewer respondents this year
believed in the effectiveness of the rules and frameworks promoting corporate
governance. Lack of investors’ knowledge about the investee company was
point out by one respondent as part of the problem saying, ‘In general…the
interest or knowledge around our company’s corporate governance issues was
shockingly low.’ Lack of communication between fund managers and governance
specialists was also blamed for poor engagement on governance.
There is a further
stumbling block in the journey to better governance and stewardship –
institutional investors are still reluctant to disclose publicly how they vote
on pay in the UK. Despite the comply or explain requirement under the
Stewardship Code, Pirc research has found slow growth in the publishing of
voting data. Out of 175 assets managers which have signed up to the code,
only 27 have disclosed a full voting record. Tom Powdrill of Pirc says
that the most common reason for non-disclosure is that the information is
considered confidential or to be shared only with clients. The UK’s
shadow business secretary, Chuka Umunna, supports a mandatory disclosure
approach (applicable in the US for mutual funds and may be required in future
for all asset managers with more than $100m under management). A
mandatory approach has received some sceptical reaction, with some warning that
it would lead to a dumping of useless information. Pirc estimates that it
might take as many as 10 years before half of the Stewardship Code’s
signatories make full voting disclosure, as some asset managers believe their
explanations of non-compliance are sufficient.
Because of these and
other barriers to shareholder activism (such as foreign shareowners and insurance companies' unwillingness to regularly monitor external fund manager[2]), the government is
considering making shareholder votes binding on future pay policy and require
boards to gain a majority of between 50 to 75% of shareholder votes for a pay
policy to be approved. It is not clear whether the binding vote approach
would actually be utilised. Despite the high profile of some say on pay
no votes, there is still a very long way to go toward tackling the issue of
high pay.
Since the 150th
anniversary of his the publication of his book Unto this last, a
number of commentators have reminded us of the wisdom of the Victorian social
reformer, John Ruskin. Much of this work has some prescient criticism of
market economics. As Andrew Hill of the Financial Times highlighted a few
years ago, ‘the paraphernalia being proposed to reign in bonuses and excessive
pay – commissions, codes – would surely have perplexed Ruskin. That
society needs to consider such mechanisms at all, he would probably have said,
is evidence ‘merchants’ have lost their moral compass and their sense of
responsibility to exert ‘the widest helpful influence…by means of [their]
possessions, over the lives of others.’
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