Walker review will force schemes to adopt “stewardship code”

Walker's review was commissioned by the government in February to explore failures of corporate governance and management of banks.

His final report - published today - suggests a series of reforms to strengthen the role of shareholders, improve the quality of bank boards, and to increase transparency of pay and bonus policies.

One major proposal is to force active investors to sign up to a new independently-monitored stewardship code, separate to the present Combined Code of corporate governance, to operate on a "comply or explain" basis.

This would apply to all shareholdings and not just those of banks.

The code's principles were originally drawn up by the Institutional Shareholders' Committee - a body which includes the National Association of Pension Funds, Association of British Insurers and the Investment Management Institute - in November but will now be converted into principles of stewardship, ratified and sponsored by the Financial Reporting Council.

The report said this transition to sponsorship by the FRC should give materially greater weight to the code. It said the FRC will also publish an engagement survey on an annual basis.

The Financial Services Authority intends to consult on a requirement for relevant authorised firms who manage assets on behalf of others to disclose on a "comply or explain" basis the nature of their commitment to this Stewardship Code.

Walker said: "Institutional investors should be less passive and prepared to engage earlier if they suspect weaknesses in governance.

"They enjoy the privilege of limited liability whereas taxpayers have ended up assuming unlimited liability in respect of the big banks. Early preventive medicine through shareholder engagement can save everyone substantial time and money later on."

The government said it backed the proposals and "would move quickly" to implement the reforms.

Financial services secretary Lord Myners will meet with major institutional investors shortly to discuss how they can implement the reforms as shareholders.

The stewardship code can be read in full here.