Director of Policy
16 Park Crescent
London W1B 1AH
30th November 2012
Re: Improving engagement practices between companies and institutional investors I have pleasure in enclosing The Investor Relations Society’s response to the above consultation.
The Investor Relations Society’s mission is to promote best practice in investor relations; to support the professional development of its members; to represent their views to regulatory bodies, the investment community and government; and to act as a forum for issuers and the investment community. The Investor Relations Society represents members working for public companies and consultancies to assist them in the development of effective two way communication with the markets and to create a level playing field for all investors. It has over 650 members drawn both from the UK and overseas, including the majority of the FTSE 100 and much of the FTSE 250. Thank you for giving us the opportunity to comment on ‘Improving engagement practices between companies and institutional investors: Good practice guide on stewardship engagement’. Stewardship engagement is a key issue for our members. Investor relations officers act as the conduit between investors and management, disseminating the company’s story and strategy to markets whilst relaying market sentiment to boards. We consider it crucial that in any discussion of company and institutional investor practices this is fully understood and recognised by all parties. We also consider that a realistic expectation of what is and is not possible with stewardship engagement is important. There
are some shareholders who have little or no interest in working with companies in furthering investor stewardship. This is a reflection of the realities of modern markets rather than a value judgement. Therefore part of the task for all concerned parties in encouraging stewardship engagement is to recognise and value those investors who are prepared to engage. We welcome the Steering Group’s identification of the importance of reaching a ‘critical mass’ of sufficiently likeminded investors and companies, identifying and working with a core group of stewards, to deliver a favourable outcome with sensible, practical steps.
This naturally leads to the question of what, in fact, actually constitutes ‘stewardship engagement’. ‘Stewardship’ can mean at least three things in the investment context – asset managers’ stewardship of their clients’ investment, company management’s stewardship in running the company on behalf of the investors who own it, and investor stewardship – investors taking an active governance role in companies they invest in. It is the last definition that investor relations teams recognise as stewardship in this context, and we consider the correct one for achieving the aims of the Stewardship Code. In our view, it is essential that all parties understand stewardship engagement in this context and we do have some concerns that this is not necessarily the case across the board. To avoid a mismatch of expectations we hope that one of the main outcomes from the work of the Steering Group’s endeavours will be to reinforce this message. We raise a number of points in our response below but our key thoughts are as follows:
• Investor relations teams are at the forefront of stewardship engagement and must be recognised as such by all parties concerned.
• Many of the best practices espoused in this guide are already happening and have been for some time, as per best practice investor relations.
• Companies want more feedback from investors.
• While we support a feedback mechanism for investor meetings in principle we have very significant concerns over the practical implications of such a scheme.
• There needs to be give and take on both sides and recognition of investor responsibilities for stewardship engagement to improve.
Finally, while the perception in the UK might exist that there is a lot to do with regards to engagement stewardship, we believe that there is in fact much to be positive about. In our experience, the impression from overseas observing UK practices on stewardship, and the wider issue of governance more generally, is that this is an area that is relatively robust in the UK.
We hope that you will find our consultation response useful and we look forward to continuing to help frame the stewardship engagement process in the UK.
Chair of The Investor Relations Society’s Policy Committee
020 7379 5151
Published: 30 November, 2012