December 31, 2013 The Recommendations Of The Collective Engagement Working Group
The Collective Engagement Working Group (CEWG) was formed in April 2013 in response to the Kay Review on equity markets and long-term decision making. The main aim of the group is to try to find ways in which investors and listed companies might work better together so as to foster a higher degree of trust and cooperation and build better, more constructive, ongoing relationships. This is motivated by the fact that ownership of British companies is far more diverse, geographically speaking, than in decades gone by and there is now a need to ensure that international investors are involved with the companies they are investing in, so that a critical mass of shareholder engagement is achieved.
Existing shareholder engagement has opened up the possibility of ways in which collective engagement might enhance existing company processes and procedures. The end result – and the focus of encouraging this additional degree of involvement via the CEWG – is for companies to achieve higher investment returns for stakeholders over the longer term.
The CEWG is supported by the Association of British Insurers, the Investment Management Association and the National Association of Pension Funds and for the past seven months has been working on its recommendations, with a view to releasing a report, which was published last month.
The report looks at how investors might be able to work together with respect to engagement with listed companies, the objective being to improve company performance over the long term and to increase end saver returns overall. It examined areas such as cultural change and integration, and the key recommendations from these conclusions are as follows:
- To foster necessary cultural change in the way that investors and companies operate and interact, with the objective of promoting more of a sense of partnership and shared interest.
- To improve accountability in the investment chain by ensuring there is more integration in future between corporate governance teams and fund management teams. This should include quality of engagement feedback being sought by institutional investors from non-executive directors.
- For larger companies to invite investors to an annual strategy meeting that will share conclusions of board evaluations, the idea being to link governance and long term performance.
In addition to the above recommendations, the CEWG has launched an Investor Forum that is designed to facilitate greater collaboration between a broader spectrum of investors. One of the intentions of the Forum is to increase involvement from overseas investors, as well as those who are UK based.
The Forum has a number of aims, including:
- To provide a channel through which to manage legal or mechanical problems that could negatively affect collective engagement.
- To set up and operate Engagement Action Groups that will be intended to deal with, and seek to resolve, issues as they arise where there is a joint concern about the behaviour of a specific company. The Forum’s Secretariat will need to regularly communicate with Engagement Action Group members to ensure that a concert party is not inadvertently formed.
- To facilitate commitment of increased resource to long-term stewardship and involvement by institutional investors.
- To ameliorate communication and interaction between companies and asset managers and owners, and to focus the objectives of all involved on generating wealth in the long term.
Regular remuneration matters are not likely to be part of the Investor Forum’s remit, unless they touch upon strategic issues i.e. where questionable compensation strategies result from broader issues.
The establishment of the Forum was one of the key objectives in the 2012 Kay Review and it is being funded by trade investors and associations. It will have its own Secretariat and at present has secured funding for at least two years of operation. Time-wise the Forum is due to deliver its first update in March 2014 and is designed to be full operational by June 2014.
