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UK investors signal fresh era in activism

December 2002

A body that represents virtually all UK institutional investors has said its members will adopt a more vigorous approach when voting at annual company meetings on resolutions that relate to corporate social responsibility.

The Institutional Shareholders’ Committee, whose members include the Association of British Insurers and the National Association of Pension Funds, says in an updated statement of principles on shareholder activism that the institutional investors it represents will take a tougher line when they have concerns about strategy and operational performance, and also about a company’s ‘approach to CSR’.

The ISC wants the principles to ‘give new impetus to effective shareholder activism’ in the UK.

Lindsay Tomlinson of Barclays Global Investors, who chairs the ISC, said: ‘This is a significant development, as the old principles focused mainly on corporate governance.’

She hinted that they had been strengthened – and updated to include CSR as a legitimate topic for activism – to fend off possible government legislation designed to make shareholders more forthright.

Last year the UK government-backed Myners Review said the Treasury should consider how best to encourage institutional investors to exercise their voting rights.

‘This approach has similar objectives, but we believe it will prove more effective than legislation,’ said Tomlinson.

The ISC will encourage its members to adopt and comply with the principles, and to include them in agreements between investment managers and clients.

UK institutional shareholders now appear more willing to exercise voting rights. Average voting levels for FTSE 350 companies rose to 55 per cent this year from 51 per cent in 2001 with more resolutions ‘becoming contentious’, according to Pensions and Investment Research Consultants.

Eighteen of the 587 companies it surveyed recently had faced resolutions in which more than 20 per cent of the votes cast did not support management.

In the US, the Securities and Exchange Commission said last month it was planning to require fund managers to disclose how they vote at company meetings on a range of issues, including social and environmental ones.

Mutual fund managers would have to publish details of their voting record at AGMs, and also how and why they come to their voting decisions. These funds controlled 19 per cent of all publicly traded US corporate equity as of December 2001 ($3.4trillion, £2.1tn), according to the SEC. The proposals are expected to apply to all US mutual funds, including those run by fund managers outside the US, and also affect registered investment advisers.

Barbara Krumsiek, chief executive of Calvert Group, said this would ‘add to the power and punch of the social investing community’. However, SRI in the US ‘is driven more by individuals than, as in Europe, by institutions’.




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