EU Should Encourage Investors to Take a Longer Term Interest in Companies

LONDON, July 22, 2011 /PRNewswire/ --

In its response to the EU green paper on corporate governance, the Investor Relations Society said that there should be a pan- European mechanism to help issuers identify their shareholders in order to facilitate dialogue on corporate governance issues. Knowing who to engage with is an essential first step. That includes being able to identify not only who owns the stock, but also who votes it, who accounts for it and who decides on the investment strategy. The availability of this knowledge underpins the push towards encouraging better stewardship. Without it, engagement is all but impossible.

Commenting on the Society's submission John Dawson, Chairman, said:

"Corporate governance has, in recent years, become a matter of great importance to investor relations professionals. Our starting point is that each company is unique, as is each investor. To impose firm regulations at national level - let alone at European Union level - would result in precisely the kind of boilerplate reporting, and strategy retrofitting that the Commission is anxious to avoid. We strongly support, therefore, the principle of comply or explain. We consider that the UK Governance Code and the Stewardship Code address many of the issues identified by the green paper."

Other concerns highlighted by the IR Society's response include:

Lack of appropriate shareholder engagement.

We do not agree with the green paper's implied introduction of an EU 'obligation' for shareholders to engage. We believe that given the distinctiveness of individual member states, and their domestic governance histories, that stewardship codes should be introduced nationally where necessary.

Short-termism of capital markets.

We agree that the trend that you report is driven by factors such as the development of trading technologies and strategies. Nonetheless companies' IR teams aim to achieve a balance which gives long term support and yet provides short term liquidity. We think that any EU initiative to artificially change this would be unlikely to work, and would impact the attractiveness of European Union exchanges as attractive places to list.  

The agency relationship between institutional investors and asset managers; the incentive structures for and performance evaluation of asset managers managing long-term institutional investors' portfolios.

We do not support the view that the European Commission should intervene to create rules regulating the fee structure between owners and managers to address the perceived misalignment of interests. We believe these rules would be counterproductive, and damage the equity markets themselves.  

Proxy advisors.

We believe that there is a role for regulators in obliging proxy firms to improve and standardise their disclosures and practices. Too many instances of poor governance 'reports' influencing votes have been recorded.

Shareholder identification.

The IR Society has been consistent in its support for a system of proactive identification for companies to require disclosure of shareholdings, to complement the existing major shareholder notification regime.

Notes for editors:

The Investor Relations Society's mission is to promote best practice in investor relations; to support the professional development of its members; to represent their views to regulatory bodies, the investment community and government; and to act as a forum for issuers and the investment community.

The Investor Relations Society represents members working for public companies and consultancies to assist them in the development of effective two way communication with the markets and to create a level playing field for all investors. It has nearly 600 members drawn both from the UK and overseas, including the majority of the FTSE 100 and much of the FTSE 250.

Our response is based on feedback we have received from our members who are engaged in the preparation of Annual Reports both as companies and advisors.

A full copy of the Society's response can be found at:

http://www.irs.org.uk

or by phoning +44(0)20-7379-1763 for an  e-mail copy

   
    For further information contact:
   
    The Investor Relations Society
    John Dawson - Chairman                        +44(0)20-7004-3170
    Mark Hynes - Policy Committee Chairman        +44(0)7957-430-333
    Michael Mitchell - General Manager            +44(0)20-7379-1763