Tomorrow’s Company, the independent, non-profit think tank that inspires and enables business to be a force for good in society, today released a consultation document which draws on the work of the Stewardship Alliance of institutional investors over 7 years. The document “Better Stewardship - an agenda for concerted action” highlights the need for improved stewardship across the whole investment chain to benefit UK savers, listed companies and the national economy. Its publication coincides with the FRC's review of the UK’s Stewardship Code for investors but its reach is broader. It identifies a troubling disconnect between our system of wealth creation, and the society which it serves. Symptoms include public anger about corporate failure and excessive executive pay; the continuing impacts on living standards from the global financial crisis; low investment, poor returns for savers, pressure on pensions; and high levels of debt, especially for graduates. Public trust in the whole system – including governments, universities and the media, not just business and investment - is low. “Too often the attempt to tackle these problems deals only with individual symptoms” says Mark Goyder, founder of Tomorrow’s Company and author of the report. “This report describes the concrete actions by investors, companies, advisors and regulators, which, taken together, would improve the focus on long term, responsible wealth creation. Competition between asset managers on relative performance is ultimately a zero-sum game. Wealth is created in companies. The core task is improving their long-term performance for the benefit of savers. This report describes concrete actions by investors, companies, advisors and regulators, which, taken together, would focus back to long term, responsible wealth creation. Better stewardship is the key to better pensions, better productivity, and greater public confidence in the whole system of wealth creation. We can only make our fellow citizens better off if companies perform well over the long term. That requires nurturing and challenging by effective owners – stewardship.” Since the introduction of the Stewardship Code in 2010 the overall quality of investor stewardship has improved but the ‘critical mass’ of stewardship investors that the FRC hoped for has not yet materialised. According to a 2016 survey a third of asset owners still do not have a stated policy for exercising their stewardship responsibilities. And only 37% set out their stewardship expectations in all their mandates. A pincer movement of leadership and regulation is needed. In the last century the working methods of many industries were transformed through the creation of the quality movement. The report details for consultation the actions needed to do the same for stewardship. “We need to encourage a better shared understanding right along the Investment chain, from individual investors and pension scheme members to boards and companies, about what good stewardship looks like” says Anita Skipper of Aviva Investors. “Each participant in the system can lead by asking ‘how are my actions helping improve the performance of the underlying assets over the longer term? We need every link in the whole chain – pension funds, investment consultants, asset managers, sell side analysts and investment banks, and company boards to play their part on this common agenda.” Stewardship action needed by investors, companies, government Drawing on the pioneering work of the Stewardship Alliance of institutional investors, and the work of Tomorrow’s Company on good governance, this report sets out for discussion and feedback the concrete actions for each link in the chain including:
Pension funds and other asset owners to make stewardship central to design and assessment of asset manager mandates
Asset managers and analysts to focus on long term performance drivers
Companies to articulate long-term vision attractive to stewardship shareholders.
Underpin this with a clear board mandate defining purpose, values, strategy, risk appetite that can be a basis of all communications with shareholders, using integrated reporting.
Government to set out its overall policy for long term wealth creation
Stewardship to be central to the terms of reference of the Financial Conduct Authority which regulates asset managers.
The Stewardship Code to link stewardship explicitly to promoting the long-term success of a company (as does the UK Governance Code).
The Stewardship Code should apply to asset owners, asset managers, investment consultants, research analysts and all relevant service providers and advisors
Each investment entity should be required to state its purpose and report against it, and report resources invested in stewardship A copy of the consultation document can be obtained by contacting Claire Dobson at Tomorrow’s Company below. -ends- Contact: Claire Dobson 0207 839 4040 01276 476025 claire@tomorrowscompany.com Notes to Editors:
About the Stewardship Alliance The Stewardship Alliance evolved from the 2020 Investor Stewardship Working Party, convened by Tomorrow’s Company. It now comprises representatives of the following organisations: Aviva Investors; BlackRock; HSBC Global Asset Management; Hermes; Legal & General Investment Management; RPMI Railpen; USS
About Tomorrow’s Company Tomorrow’s Company is an independent non-profit think tank that exists to inspire and enable companies to be a force for good in society. It believes business can create more value for shareholders and society by adopting an approach that focuses on purpose, values, relationships and the long term. It succeeds in its goal by convening business leaders, investors, policymakers and civil society organisations to develop practical solutions to shared challenges. It was founded in 1996 following the RSA inquiry into the role of business in a changing world. Website: www.tomorrowscompany.com Twitter: @Tomorrows_co Linkedin: https://www.linkedin.com/company-beta/1100238/