New UK Stewardship Code

The UK's Financial Reporting Council published The UK Stewardship Code earlier this week. The introductory paragraph contains a statement that "The Stewardship Code aims to enhance the quality of engagemetn between institutional investors and companies . . . ." The Stewardship Code complements the Corporate Governance Code, which was also issued this summer.

The Stewardship Code is particularly noteworthy in that it sets forth principles that should guide institutional investors in discharging their stewardship responsibilities. Seven principles are set forth to guide the institutional investors, and each principle is explained in detail. The seven principles state that institutional investors should:
1. publicly disclose their policy on how they will discharge their stewardship responsibilities;
2. have a robust policy on managing conflicts of interst in relation to stewardship and this policy should be publicly disclosed;
3. monitor their investee companies;
4. establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value;
5. be willing to act collectively with other investors where appropriate;
6. have a clear policy on voting and disclosure of voting activity; and
7. report periodically on their stewardship and voting activities.

It will be interesting to see how institutional investors implement the Stewardship Code. A companion document on implementation
explains the steps that institutional investors should take to implement the code. The FInancial Reporting Council has noted that it will begin with a "comply or explain" approach to the Code, requiring institutional investors to note on their websites whether they comply with the Code and, if not, to explain why.