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Jun 26, 2013

UK institutional investors increase company engagement

Board remuneration and corporate strategy the most common triggers for investor engagement

Institutional investors in the UK intensified their monitoring of companies they invest in last year while voting levels increased, indicating tighter engagement, according to a study by the UK’s Investment Management Association (IMA).

The number of investors that monitor all the companies they invest in as a part of the investment process rose to 76 percent in 2012 from 70 percent the year before, according to the survey. While institutional investors with investments in a company’s equities are most likely to monitor, 36 percent of fixed income holders and 24 percent of private equity holders also do so.

The number of investors that vote their UK shares increased to 88 percent in 2012 from 86 percent the previous year and 81 percent in 2010, the survey shows. Meanwhile, the number of survey respondents that made their votes public record dropped to 65 percent from 73 percent.

The IMA cites a series of notable investor engagements in the UK last year, including engagement by Barclays on compensation, which prompted the bank to change its remuneration policy, and on the proposed acquisition of Danish company ISS by G4S, which prompted the security firm to cancel the planned purchase. It cites similar impacts at SABMiller, WPP and Xstrata.

‘Institutional investors engage on wide-ranging issues related to the long-term strategy and objectives of businesses,’ says Liz Murrall, the IMA’s director of corporate governance and reporting, in a press release announcing the study results. ‘In particular, the case studies in relation to a proposed acquisition by G4S and the Xstrata/Glencore merger are examples of how investors successfully engaged and helped steer the direction of these companies to protect or add value for shareholders, the true end-clients.’

The survey of 103 institutional investors, which focuses on adherence to the Financial Reporting Council’s (FRC) Stewardship Code – meant to enhance engagement between institutional investors and the companies they invest in – also reveals that investor engagement is most common on issues related to pay.

In both 2011 and 2012 board remuneration was the top issue resulting in investor engagement, followed by corporate strategy and objectives, the study states. Board leadership was the third-most common subject of investor engagement last year, and eighth in 2011.

In 2012 board diversity was the fourth-most common reason for investor engagement, followed by corporate actions and restructuring, environmental or social issues, M&A, board succession planning, risk appetite and pre-emption rights.

The number of respondents that attended annual general meetings fell to 28 percent last year from 30 percent in 2011 and 38 percent in 2012, although the IMA attributes the decline to the smaller average size of the responding firms in 2012 compared with previous years.