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Stewardship Code: Basics
In his November 2009 report on the governance of banks and other financial institutions, David Walker recommended that the Financial Reporting Council’s (FRC) remit should be extended to cover the development and encouragement of adherence by institutional investors to best practice in the stewardship of UK listed companies.
Following this recommendation, the then Government requested that the FRC take responsibility for a stewardship code.
A consultation was issued in January 2010 on whether the FRC should oversee the Institutional Shareholders’ Committee (ISC) current code or whether amendments should be made to it first. Ultimately, it was decided that the FRC would adopt the ISC Code with minor amendments and it would be known, from then onwards, as the Stewardship Code.
The UK Stewardship Code was published in July 2010. It aims to enhance the quality of engagement between institutional investors and companies to help improve long term returns to shareholders and the efficient exercise of governance responsibilities by setting out good practice on engagement with investee companies to which the Financial Reporting Council (FRC) believes institutional investors should aspire.
The Code is addressed to firms who manage assets on behalf of institutional shareholders such as pension funds, insurance companies, investment trusts and other collective investment vehicles. The FRC expects those firms to disclose how they have applied the Code. A consultation will be published shortly on proposals to introduce a mandatory requirement for authorised asset managers to disclose whether or not they comply.
The FRC emphasises that the responsibility for monitoring company performance does not rest with fund managers alone. Pension fund trustees and other owners can do so either directly or indirectly through the mandates given to fund managers.
Author: Georgina Jones