Friday, September 23, 2011

UK Minister Urges Institutional Investors to Help Enhance Corporate Governance

UK Financial Secretary Mark Hoban urged pension funds and other institutional investors to become more involved with corporate governance at the companies they invest in. In remarks to the National Association of Pension Funds, he pledged that the Government will work with investors and companies to strengthen the corporate governance framework and provide greater opportunities for stewardship over a sustained period.

In his view, institutional shareholders, such as pension funds, are responsible for holding directors to account for corporate performance and pay, and the Government will help them strengthen their ability to discharge this role. But as well as strengthening corporate governance, the Government has also looked at a more fundamental question around that debate around stewardship and trading. For example Vince Cable the Secretary of State for Business has commissioned Professor John Kay to conduct an independent review of UK equity markets, examining the question of how equity investment can better support the long term interests of companies, as well as in this case, pension fund members themselves.

On a broader front, the Walker Review of corporate governance of led to a thorough revision of the UK Corporate Governance Code to promote better informed, more focused and effectively led boards, and to a Stewardship Code to encourage institutional investors to exercise their governance responsibilities more effectively and transparently.

These improvements have been complemented by the FSA’s strengthening of its Significant Influence Function reviews of prospective board members, and its introduction of the FSA Remuneration Code, which establishes a firm link between executive pay and effective risk management.

Finally, the Minister noted the publication of a BIS consultation on measures to improve the transparency of pay, and of a discussion paper on executive pay, which takes this further. These will promote informed debate on the incentivisation and accountability of company managers for long-term performance.