The activities asset managers undertake to promote the long-term success of companies are collectively known as ‘stewardship’. This involves working with company management and Boards, holding them to account, and voting at company AGMs (annual general meetings). With 75% of UK households using the services of an investment manager (because they invest people’s pensions), ensuring the companies they invest money in are run well is a key role of an investment manager. At the IA, we advocate a market-led approach to stewardship and corporate governance reform, rather than government intervention.

 

The AGM season

Each year, AGMs provide shareholders with an opportunity to express publicly (and use their voting power to show) their satisfaction or otherwise with how a company is managed, and with the people who run it.

The IA’s new guide to the AGM season – the Good Stewardship Guide 2019 – highlights key topics we expect shareholders to scrutinise and vote on at this year’s AGMs.

Our members have shown that taking action on corporate governance issues can achieve positive and lasting results, improving company behaviour for the better. In 2019, we’re supporting our members in these stewardship activities by focusing on three key issues. Issues they’ve identified as critical for companies to make improvements on in 2019: diversity, executive pensions and quality of audit.

 

IA guidelines for listed companies

The IA also produces guidelines for listed companies on numerous areas of corporate governance, setting out investor expectations of their behaviour. Institutional Voting Information Service (IVIS) provides corporate governance research to shareholders to help their voting decisions during AGM season and assesses companies against these guidelines. A ‘red top’, the highest level of warning IVIS issues, is reserved for companies where shareholders should have significant and serious concerns.

 

Our key 2019 campaigns:

1. Executive pensions

The 2018 Corporate Governance Code requires companies to aim for parity in the pensions contributions of their directors and their workforce. Our own 2018 Principles of Remuneration endorse this expectation. Our members think it’s only fair that executive pension contributions should be aligned with most of the workforce. 

In February 2019, we announced IVIS will ‘red top’ companies who pay newly-appointed directors pension contributions that are out of step with most of their employees. IVIS will also ‘amber top’ any existing executive director receiving a pension contribution of 25% of salary or more on the remuneration policy and remuneration report. Following the AGM season, the IA will provide an update on the impact IA members are having on reducing pension contributions.

2. Diversity on boards campaign

In 2018, we wrote to FTSE 350 companies that had no women on their boards or which had low gender diversity among their senior management teams. This had a big impact, particularly on companies with no female board representation. Of the eleven all-male boards we wrote to, ten have now appointed at least one woman.

Investors have been consistently clear they want to see greater diversity in the boardroom. There’s also compelling evidence that boards with greater gender balance outperform their less diverse peers. 

In 2019, we’re focusing on board diversity as a part of a wider campaign. We’ve written a joint letter with the Hampton-Alexander Review to companies with no women on the board or to the ‘one and done’ companies with only one woman on their board. We’re asking them to show how they’ll reach the Hampton Alexander Review targets (women representing 33% of their boards) by 2020. 

IVIS will also ‘red top’ companies with no or only one women on their board. For Boards with female representation of 25% or less, IVIS will issue an ‘amber-top’ to signify they’re not on course to meet the requirements of the Hampton-Alexander review, for 33% of women on their board by 2020.

3. Audit quality

Investors would like audit committees to give more insight in their audit committee reports into the steps they’ve taken to ensure a quality audit. If there’s been a tender, then the committee should be open about why it recommended a particular auditor and why that firm would provide a quality audit.

Every year, audit committees should declare whether they think the auditor has provided a quality audit, been challenging enough, looked at and questioned the detail of key accounting issues, and how the auditor challenged management’s judgement and assertions, and exercised professional scepticism.

 

Front cover image of Shareholder Votes paper

Shareholder votes on dividend distribution in UK listed companies

The case for a Distribution Policy
May 2019
Stewardship Thumbnail

Stewardship in Practice

IA Stewardship Survey - November 2018
Business Account Cover Image

Holding Big Business To Account

A Guide To The UK AGM Season - March 2018