ABI issues report on Corporate Governance and Shareholder Engagement

  • Corporate Governance  Image

25 Jul, 2013

The Association of British Insurers (ABI) has today published a report on “Improving Corporate Governance and Shareholder Engagement”. The report demonstrates that the UK Corporate Governance system and shareholder engagement are generally working well but also highlights that improvements could be made to the roles and responsibilities of what it calls the “principal elements within Corporate Governance”.

The debate as to what these roles and responsibilities are has intensified with the publication in 2012 of Professor Kay’s review of the UK equity market and the recently revised FRC Stewardship Code

The recommended improvements seek to ensure a robust Corporate Governance environment within listed companies and the protection of shareholders.  The ABI notes that companies should “focus more on the application of the principles of the UK Corporate Governance Code, rather than just compliance with provisions”    

The ABI report highlights that good Corporate Governance is critical to the success of a company, commenting: 

Good Corporate Governance enhances and underpins a company’s long-term sustainable performance; it is critical to long-term value creation and economic growth

The report considers that the “principal elements” within Corporate Governance are 

  • Directors;
  • Executive Directors;
  • Non-executive directors; and
  • Shareholders being either asset managers or asset owners. 

The report provides a particular focus on the role of non-executive directors highlighting “possible measures to improve the framework within which they operate and so enhance their ability to achieve the appropriate balance between support and challenge”.  The report also considers the role of shareholders in the appointment of non-executive directors. 

The main recommendations of the ABI report are:

Improved disclosure

  • Companies should improve Corporate Governance reporting.  The report notes that “all companies should adopt a Chairman’s introductory statement to the Corporate Governance section of the annual report”.  The report also notes that improvements could be made when explaining deviations from the Code to ensure that they are still indicative of good Corporate Governance.

Non-executive directors

  • Companies should review the time-commitment requirements of different non-executive roles to give them the opportunity to be able to achieve a “good understanding of the company’s business and the strategic opportunities and challenges it faces”.
  • Greater empowerment of non-executive directors.  Non-executive directors should have appropriate time and greater power to request information that will allow them to be able to challenge and support the decisions of executive directors.  The report also notes that companies should also ensure that “general” information, commonly in the form of a board pack, is easily understandable and accessible by the non-executive directors prior to board meetings and non-executive directors should be able to refuse a board pack that is too long. 
  • Companies should ensure that non-executive directors receive timely and full information on potential merger and acquisition transactions to allow them to have “sufficient time and information to give proper consideration to the merits of the transaction”.  Non – executive directors should also seek independent advice, where required.

Shareholder engagement

  • ABI members attend regular meetings with companies which discuss the principles of good Corporate Governance and to facilitate “collective engagement” with companies.   The report recommends that these meetings are opened to a wider pool of institutional investors rather than just to ABI members so that these can benefit from ABI’s expertise in this area.   
  • An “Investor exchange” mechanism should be established which would enable shareholders to raise concerns regarding UK listed companies with other shareholders through the “collective engagement” meetings. 

Additional recommendations in the above areas as well as recommendations relating to asset owners and asset managers are included in the full report which can be obtained here along with the press release (links to ABI website). 

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