The Stewardship Code is a part of UK company law concerning principles that institutional investors are expected to follow. It was released in 2010 by the Financial Reporting Council, and is directed at asset managers who hold voting rights on shares in United Kingdom companies. Its principal aim is to make institutional investors, who manage "other people's money", be active and engage in corporate governance in the interests of their beneficiaries (the shareholders).
The Code applies to "firms who manage assets on behalf of institutional shareholders such as pension funds, insurance companies, investment trusts and other collective investment vehicles." This means fund managers, but the Code also "strongly encourages" institutional investors to disclose their own level of compliance with the code's principles.
The Code adopts the same "comply or explain" approach used in the UK Corporate Governance Code. This means, it does not require compliance with principles. But if fund managers and institutional investors do not comply with any of the principles set out, they must explain why they have not done so on their websites. The information is also sent to the Financial Reporting Council, which links to the information provided to it.
The seven principles of the code are as follows. Institutional investors should,
- publicly disclose their policy on how they will discharge their stewardship responsibilities.
- have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed.
- monitor their investee companies.
- establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.
- be willing to act collectively with other investors where appropriate.
- have a clear policy on voting and disclosure of voting activity.
- report periodically on their stewardship and voting activities.
- UK company law
- UK Corporate Governance Code
- Say on pay
- Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
- Stewardship Code (2010) 2
- BW Heineman, 'A "Stewardship Code" for Institutional Investors' (18 January 2010) Harvard Business Review blog
- M Johnson, 'Global investment groups back UK shareholder code' (18 October 2010) Financial Times
- E McGaughey, 'Do Asset Managers and Banks Control Share Voting Rights on Your Money?' (5 June 2017) Oxford Business Law Blog
- E McGaughey, 'Does Corporate Governance Exclude the Ultimate Investor?' (2016) 16(1) Journal of Corporate Law Studies 221
- Government reports
- Myners Report (2001), Institutional Investment in the United Kingdom: A Review on institutional investors, Pdf file here and Review of Progress Report here
- Myners Review (2004) Myners principles for institutional investment decision-making: review of progress .pdf here
- Walker Review (2009) in response to the financial crisis, and focusing on institutional investors, .pdf document