Ethical Performance
inside intelligence for responsible business


Myners Review may boost SRI

April 2001

The UK government is to ask institutional investors to become more active shareholders in order to improve the performance and behaviour of companies.

The move will come as a result of the Myners Review of institutional investment, which was published last month. Socially responsible investment experts are claiming the review will greatly strengthen their hand when they engage in dialogue with companies.

Chancellor of the exchequer Gordon Brown has accepted all of the Review’s recommendations. These include a call for fund managers to intervene in companies where this is in the interests of shareholders - a duty that could eventually be enforced by law.

Myners says mandates for fund managers should incorporate the principles of the US Department of Labor’s ‘interpretive bulletin on activism’ which encourages fund managers and other investors to intervene through meetings with company executives, by writing letters and by voting at annual general meetings.

In the UK, trustees will be required to outline a strategy in their mandates for fund managers ‘elucidating the circumstances in which they will intervene in a company, the approach they will use in doing so, and how they measure the effectiveness of this strategy’.

The change will encourage UK institutional investors to intervene - either by engaging with companies or by tabling shareholder resolutions at AGMs - on a range of issues, from directors’ pay to company involvement in countries where there are human rights abuses.

The Myners Review makes no direct reference to socially responsible investment. However, Rob Lake, head of SRI strategy at Henderson Global Investors, said: ‘SRI issues may not have been what Myners specifically had in mind, but when the US guidance is extended to the UK it will provide an even stronger argument for investors to raise issues that are on the social and environmental agenda. It’s good news as far as engagement and governance are concerned, and provides another link in our argument for SRI engagement with companies.’

The US guidance says shareholder activism should generally tackle issues such as directors’ pay, merger policy and debt financing, but adds it can also include ‘workplace practices’ and ‘non-financial measures of corporate performance’.

Alan MacDougall, managing director of Pensions and Investment Research Consultants, said the review had ‘set out a new framework for fund manager reporting on governance and socially responsible investment’. It was ‘a wake-up call to fund managers and trustees that shareholder activism to influence change at poorly performing and badly governed companies must be part of the panoply of measures used to add value.’

The Treasury told EP that, as with other parts of the Myners Review, the chancellor will expect the recommendations on shareholder activism to be taken up voluntarily by companies, but if they do not do so within two years, he would consider introducing legislation.

Shareholder activism in the UK is already on the increase. In the last year, shareholder resolutions concerning SRI have targeted several companies, including BP.

The Myners Review, commissioned by the UK government last year and written by Paul Myners, chairman of Gartmore, criticized fund managers for being ‘reluctant to intervene in companies where they own substantial shareholdings, even where this would be in their clients’ financial interests’.


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