Investor letter to FTSE chairs calls for new group to ease stewardship concerns

Some of the world’s largest investors have called for a new group to be formed with FTSE 100 boards to calm a brewing argument over the role of stewardship and corporate governance in the UK.

The Investor Forum, which represents shareholders with more than £800bn in UK equities, has written to FTSE chairs calling for fresh discussions to help settle contentious topics such as executive pay and overboarding ahead of the 2023 AGM season.

The letter, which was sent on Tuesday and seen by the Financial Times, follows a report by Tulchan Communications that highlighted a breakdown in the relationship between British boards and shareholders.

The report, published in November last year, quoted chairs of some of the UK’s largest listed companies warning over “box-ticking” exercises on stewardship and executive pay that were risking company growth.

The Investor Forum, which surveyed its members, including many of the biggest UK and global institutional investment firms and asset owners, said the vast majority did not believe that the report was an “accurate reflection of their relationships with companies”. 

The letter pointed to institutional investor support for companies during the Covid crisis when more than £40bn of equity was quickly raised.

It argued that companies should take their share of responsibility in the deterioration of the relationship, as they have failed to fully take into account investors’ stewardship reports and policies on a range of issues, particularly on remuneration and board composition.

The letter also said investors felt company chairs had not fully understood the impact of a “seismic shift in client scrutiny” of voting decisions, or the changing make-up of UK equity ownership and the “significant reduction in professional resources that have a dedicated UK company focus”.

However, the group also said that investors recognised the growing sense of frustration in UK boardrooms over the role of proxy agents, and which centred on issues relating to executive remuneration and overboarding.

The letter called for a better dialogue with the chairs of UK companies but said conversations should focus on specific topics such as remuneration and the role of proxy agents “rather than simply get people around a table to rehash strongly held opinions”.

On executive pay, the letter said “differences of opinion between companies and investors need to be addressed to ensure that broader relationships are not undermined”, saying 2023 is expected to see a greater number of “challenging discussions”. This year, many companies face a three-yearly vote on their remuneration policy.

The letter said these discussions could lead to a new group that “over time . . . could perhaps take responsibility for the health of the company/investor dialogue in the same way that the Financial Policy Committee was introduced to take care of the financial system in the aftermath of the financial crisis”.

The letter was sent to FTSE 100 chairs, as well as the “GC100” group of company secretaries. It said: “All parties agree on the common need to focus investor/board dialogue on sustainable value creation, rather than perceived ‘tick-box governance’.”