UK/GLOBAL - A radical new code of stewardship for pension funds backed by some of the world's biggest investors has already caused outrage among fund managers.
The International Corporate Governance Network (ICGN), which includes the world’s largest pension scheme, the California Public Employees Retirement System, the UK’s British Telecommunications’ pension fund and Europe’s largest, ABP, has submitted a series of proposals urging pension funds to improve their monitoring of corporations to prevent Enron-style scandals.
The ICGN consultation document outlines institutional investors’ fiduciary responsibilities on corporate governance, and includes voting, expressing concerns to firms, making public statements and submitting proposals for the agendas of shareholder meetings.
It states: “A precondition for the proper discharge of institutional investors’ responsibilities is a well-functioning fund governance system with adequate checks and balances.”
Alastair Ross Goobey, ICGN's chairman, said: “We think that this is the first code which is spelling out the responsibilities of shareholders.
“Most of the attention is on what shareholders expect of companies. Companies have a right to expect shareholders to behave appropriately and certainly the beneficial owners of shares have a right to expect their agents to do their duties as stewards of their investments.”
Goobey also explained how there were also some conflicts of interest within the fund management industry “which make it difficult for them [managers] to be very publicly engaged in governance issues because they may be upsetting their clients or even their own boards.”
But the UK’s Investment Management Association (IMA) has spoken out against the proposals saying that pension schemes and their fund managers should not be forced to disclose how they vote at shareholder meetings.
IMA is the first UK body to respond to the ICGN consultation paper.
The IMA’s draft response – which has been seen by IPN’s sister publication Professional Pensions – criticises the ICGN proposal for public disclosure and claims it could “undermine the voting process”.
The IMA said public disclosure could lead to a “general dumbing down” of the process due to the levels of confidentiality and confidence required.
It said public knowledge of disagreements highlighted through the disclosure of voting could have an “adverse effect” on shareholder value.
It also suggested that the document should further clarify instances where it may not be “practicable” for investors to take part in voting or other activities.
“Although the principles could be applied to any company, irrespective of its market capitalisation, institutional shareholders and/or agents may need to have de minimis limits for cost-effectiveness.”
Deadline for responses to the consultation paper is May 31. Goobey added that the code was timetabled for likely approval at the ICGN’s July meeting in Amsterdam.
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