The Forum will:
• Promote shared commitment to long-term strategies and sustainable wealth creation among asset owners, asset managers and companies
• Operate “Engagement Action Groups”, open to overseas investors as well as traditional UK investors, to address and resolve issues of concern when they arise at major UK listed companies
• Be operational by June 2014
• Have its own secretariat to progress the Forum’s objectives and manage the Engagement Action Groups. The Forum has secured funding for at least two years from investors and trade associations.
The Collective Engagement Working Group, chaired by James Anderson, Partner at Baillie Gifford, was established in April 2013 and was supported by the ABI, IMA and NAPF. The Working Group was formed in response to the Kay Review on equity markets and long-term decision making. Its objective was to identify how investors might be able to work together in their engagement with listed companies to improve both sustainable, long-term company performance and overall returns to end savers.
The key conclusions of the Working Group are:
• A new Investor Forum for Collective Engagement should be created to:
o Ensure the opportunity for inclusion and participation of the broadest possible range of institutional investors (especially international asset owners and asset managers and sovereign wealth funds)
o Operate Engagement Action Groups to maximise strength of voice and achieve positive results where there are shared concerns about a particular company
o Drive cultural change and promote the commitment of more resource to long-term stewardship and engagement by institutional investors.
• Cultural change is needed. Asset owners, asset managers and companies need to develop a shared sense of partnership, with the objective of promoting long-term strategies for prolonged competitive advantage at companies - leading to sustainable wealth creation for all stakeholders.
• Major listed companies should hold an annual strategy meeting for institutional investors, outside the results cycle, where investors and company executives can link governance to the company’s long-term strategy without the focus on short-term results.
• Engagement on governance issues should be integrated into the investment process.
Next Steps
An implementation team will be led by Sacha Sadan, Director of Corporate Governance at Legal General Investment Management. The implementation team will establish the Forum’s governance structures, appoint individuals to roles and identify other requirements that may be needed in order to ensure the Forum becomes fully operational. The implementation team will deliver a status update report by the end of March 2014.
James Anderson, Partner at Baillie Gifford and Chair of the Collective Engagement Working Group, said:
“This report is a concerted and enthusiastic response by asset managers and asset owners to the Kay Review’s recommendations.
“We insist that improvements in the collective engagement process are not a chimera. They are feasible with consistent and long-lasting effort. Ultimately these improvements can contribute to increased wealth creation by companies and for savers. We must be consistently engaged rather than occasionally outraged or so often apathetic.
“The Investor Forum that we have announced today will drive cultural change and act as a mechanism for investors to work together more effectively when there are issues at particular companies that have not been resolved by conventional engagement.”
Vince Cable, Secretary of State for Business, Innovation and Skills, said:
“The creation of an Investor Forum was one of the recommendations of the Kay Review and I welcome today's report. This acknowledges the need for a shift in the culture of equity investment, focusing on long-term wealth creation and a stronger voice for committed investors.
“Improved collective engagement by investors is a vital part of achieving this, and I would encourage long-term investors in UK companies to make a genuine and sustained commitment to its success. We now need to see immediate and concrete action to make the Forum a reality.”
Professor John Kay, who chaired the Review of UK Equity Markets and Long-Term Decision Making, said:
“The Investor Forum was central to the recommendations of our review of equity markets. I am delighted at the success of the IMA in bringing the industry together to advance collective engagement between institutional investors and companies.”
Robert Swannell, Chairman of Marks and Spencer plc, said:
“Open dialogue with our key shareholders is crucial – this is an important initiative to encourage this process further. Our owners should have a clear strategic context for all we are doing as well as confidence in our governance. For the past three years we have organised an annual meeting with our key shareholders and representative bodies to help achieve this. Our objective is to give our owners an insight into how our Board works, the rationale behind the decisions we take and our Board dynamics; the latter point is often overlooked but in my view really matters."
Glen Moreno, Chairman of Pearson plc and Deputy Chairman of the Financial Reporting Council, said:
“This is a constructive and helpful approach. It provides a practical mechanism for managing the engagement process, particularly with foreign investors. I think the annual strategy/governance meetings can be very helpful in establishing effective engagement between institutional investors and company boards.”
Geoff Cooper, Chairman of Dunelm Group plc and Chief Executive Officer of Travis Perkins plc, said:
“A positive approach to engagement by both company boards and investors is an important part of growing healthy businesses, and a regular opportunity to discuss collectively strategy should be part of that engagement.”
Robin Freestone, Chief Financial Officer of Pearson PLC, Chairman of The Hundred Group of Finance Directors, said:
“For many years, The Hundred Group of Finance Directors has been seeking a body, energised to improve engagement between investors and corporates and willing to discuss collective efforts to improve long-termism. We are very pleased to have been introduced to, and engaged with, the Collective Engagement Working Group during their deliberations and are fully supportive of its objectives, efforts and creation of the Investor Forum.
“Long-term, sustainable value creation is something that we all share a passion to achieve. This report is an excellent step forward in ensuring that complementary objectives between both investors and corporates alike are further put into practice and realised.”
Lord Davies of Abersoch, Senior Independent Director of Diageo plc, said:
“There has been increasing demand for a clear dialogue on key issues with the largest shareholders in a more formal way as AGMs have become more suited to the smaller shareholders. Implemented well and this will be real progress.”
Stephen Haddrill, Chief Executive Officer of the Financial Reporting Council, said:
“The FRC's Stewardship Code encourages investors to take part in collective engagement, recognising that collaboration will often be the most effective way of having a constructive dialogue with companies. We welcome the Working Group's report, in particular the emphasis it rightly places on bringing overseas investors into the engagement process, and hope that as a result the Forum itself will be up and running in the near future."
Sacha Sadan, Director of Corporate Governance, Legal General Investment Management and Chairman of the Forum Implementation Team, said:
“This is another step towards better collective investor engagement. The aim is to embrace all major UK investors wherever they are based. The benefits should be seen by investors and by companies while also enhancing the reputation of the UK market. ”
Daniel Godfrey, Chief Executive, IMA, said:
“The IMA is a firm supporter of the Investor Forum. Through the process of the last year’s work on this, it has become clear that asset managers can’t drive a new long-term agenda on our own. Asset managers, asset owners and companies need to work together with total alignment towards the best long-term outcomes for our investors and the economies in which we invest to bring about meaningful change. We hope that the new Investor Forum, announced today, will come to be seen as the catalyst that drives that partnership and which brings about a real enhancement in the practice of stewardship by investors.”
Joanne Segars, Chief Executive, NAPF, said:
“The NAPF has been an active supporter of the Collective Engagement Working Group, and we welcome this report and its recommendations. Our members provide retirement income to nearly 16 million people, and the NAPF has long been an advocate for a constructive ongoing dialogue between investors and the companies in which they invest, to achieve better outcomes for long-term investors like pension funds. We look forward to continuing our support of this initiative.”
Otto Thoresen, Director General of the ABI, said:
“The ABI and its members have for many years been strongly committed to good collective engagement. The ABI has facilitated collective meetings between hundreds of companies and its members as a complement to individual engagement which remains the primary focus of interaction between companies and shareholders. Earlier this year, we announced we would be improving our approach to collective engagement by opening up collective meetings to non-ABI members and establishing an Investor Exchange. The Report of the Collective Engagement Working Group is a valuable further contribution and we look forward to seeing the final shape of the Investor Forum once the Implementation Group reports in March 2014.”