By Ben Simmons
Despite investor support for the UK Corporate Governance and Stewardship codes, there is widespread concern that there is insufficient oversight into whether institutions really comply.
The Share Centre invited key industry experts to debate the “Accountability in Business” report, which provides an inside-look at corporate governance amongst specialists and fund managers. The study highlights their views on the much-debated topics of the codes currently in existence, directors’ remuneration, company boards and risk management and capital adequacy requirements.
The research suggested that investors were supportive of both the UK Corporate Governance Code and Stewardship; and of those (50%) said the comply-or-explain regime was the UK Corporate Governance Code’s key attraction, while 14% welcomed the increased focus on board effectiveness.
A third (29%) of investors believe the Stewardship Code’s key benefit was that it encouraged smaller funds to engage with companies. When questioned over their concerns about the code, 35% of investors had reservations, with 18% believing there is insufficient oversight of whether institutions really complied.
The main potential penalty for an institution not adhering to the Stewardship Code is the loss of its clients. Over half (54%) think this is enough of a deterrent, while others consider it too early to gauge whether it will happen in practice.
More than 70% of investors believe there is value in executives appearing before Parliament. The typical reasons for this include the need for MPs to understand company failures and the benefits of powerful executives being held accountable.
And half (53%) believe investors should vote on major changes to a company, such as a new business model. Those in favour also note the significant practical difficulties of deciding when a vote is necessary. Almost two thirds (60%) of respondents think there is enough oversight already and struggle to see what else would be worthwhile.
Andy Parsons, head of investment research at The Share Centre comments: “The subject of corporate governance has never been so relevant and prominent, especially around the most vexing of issues, remuneration. Private investors continually hear about vast boardroom remuneration packages; trying to comprehend the vast discrepancies between the numbers mentioned and their own personal financial circumstances. In addition, it’s always alarming to hear of bonus packages, when a business may have clearly failed to deliver shareholder returns. Is it right that individuals can be rewarded for failure?”
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