Financial Reporting Council
London WC2B 4HN
12th July 2012
The Investor Relations Society’s Response to the Financial Reporting Council on Revisions to the UK Stewardship Code Consultation Document
Dear Mr Hodge
Thank you for giving us the opportunity to take part in the above consultation. I am pleased to enclose The Investor Relations Society’s response.
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 600 members drawn both from the UK and overseas, including the majority of the FTSE 100 and much of the FTSE 250.
Investor stewardship has been one of the big issues for our members in recent years and we expect this will continue to be the case. We believe that investor stewardship is mutually beneficial to both issuer and investor and we endorsed the FRC’s Stewardship Code from its initiation, stating in July 2010 that: "Communication between companies and their investors is a two way process so we strongly support anything which improves this. We will continue to monitor the development of shareholder engagement and take part in the debate on stewardship". We consider that the introduction of the Stewardship Code usefully ‘codified’ existing investor relations practices. Accordingly, our members recognise the importance of regular investor meetings, with 86% meeting their top ten investors more than once a year. Furthermore, 67% of our members recently reported to us that their top ten investors are actively engaged.
In order to ascertain current thinking from IR professionals on the subject of stewardship we are running a series of ‘IR Forums’ to enhance engagement by bringing together investors with our members. Early conclusions focus on the need to make further improvements to the interaction between investors and companies while recognising that overall it is felt that most investors are already conforming to best practice in communication with companies and adopting the principles of the Code, and that the code had improved engagement of smaller investment funds in particular. There are areas in which we feel the Code requires revision in order to deliver on its overall objective and we are pleased to see that many of these are addressed in the proposed revisions as we discuss in our consultation response, with a summary of our key points below:
1) We do not consider at this stage there can be sufficient grounds for confusion over the basic terms.
2) The two fundamental considerations for IROs in ascertaining and encouraging investor stewardship are i) recognising which parties have voting rights and ii) identifying the party that understands the company and takes decisions regarding investment.
3) Time and personnel resourcing is a key issue for institutional investors and particularly so in the smaller houses.
4) Our primary concern over investor stewardship and the Code is the growing trend for institutional investors to outsource their stewardship responsibilities to third parties e.g. proxy advisory agencies.
Extrapolating from point 4 above, we would like to see Principle 1 of the Code expanded on the issue of proxy advisory to make it clear that proxy advisory firms should not be expected to assume institutional investors’ overall investor stewardship duties. While we recognise the advantages of using these agencies for fund managers, it is essential for the long term success of the Code and therefore the interests of issuers and investors that investor dialogue is not reduced to a prescriptive box ticking exercise for reasons of proxy advisory procedure. This we feel is contrary to the spirit and objective of the Stewardship Code.
General Manager, The Investor Relations Society
3 Bedford Street
London WC2E 9HD
020 7379 1763
Chair of The Investor Relations Society’s Policy Committee
020 7379 5151
Published: 13 July, 2012