Some of the world’s biggest investors have called for a new group to be formed with FTSE 100 boards to calm a row over the role of stewardship and corporate governance in the UK.
The Investor Forum, which represents shareholders holding more than £800bn of UK shares, has written to the FTSE chairmen calling for further talks to help settle contentious issues such as executive pay and overruns before the 2023 general assembly season.
The letter, sent on Tuesday and seen by the Financial Times, follows a report by Tulchan Communications which highlighted a breakdown in the relationship between UK boards and shareholders.
The report, published in November last year, quoted the chairmen of some of the UK’s largest listed companies warning that ‘check mark’ exercises on stewardship and executive pay risked undermining growth of the company.
The Investor Forum which surveyed its members, including many of the UK’s and global’s largest institutional investment firms and asset owners, said the vast majority did not believe the report was an “accurate reflection of their relationships with the companies”.
The letter highlighted institutional investor support for companies during the Covid crisis, when more than £40bn of equity was quickly raised.
He argued that the companies should take their share of the blame for the deterioration of the relationship because they failed to fully consider investors’ stewardship reports and policies on a range of issues, particularly on pay. and the composition of the board of directors.
The letter also said investors felt the companies’ presidents had not fully understood the impact of a “seismic shift in customer scrutiny” of voting decisions, or the changing composition of the board. British shareholding and the “significant reduction in professional resources which have a dedicated UK corporate focus”.
However, the group also said investors recognized the growing sense of frustration across UK boards over the role of proxy officers, and which focused on issues related to executive pay and overcharging.
The letter called for better dialogue with the chairmen of UK companies, but said conversations should focus on specific topics such as pay and the role of trustees “rather than just getting people around a table to rehash strong opinions”.
On executive pay, the letter said “differences of opinion between companies and investors must be addressed to ensure broader relationships are not undermined”, saying 2023 should see more “discussions difficult”. This year, many companies face a triennial vote on their remuneration policy.
The letter said these discussions could lead to a new group that “over time. . . could perhaps take responsibility for the health of the company/investor dialogue in the same way that the Financial Policy Committee was set up to take care of the financial system in the aftermath of the financial crisis”.
The letter was sent to the chairmen of the FTSE 100, as well as the ‘GC100’ group of company secretaries. He said: “All parties agree on the shared need to focus investor/board dialogue on sustainable value creation, rather than perceived ‘tick-box governance’.”