FTSE chairmen warn of declining relations with institutional investors

Executives of some of the UK’s biggest listed companies have warned that relations with their institutional investors have deteriorated markedly, with ‘tick’ exercises on management now risking company growth.

The State of Stewardship report, compiled by public relations and lobbying group Tulchan, highlights a number of issues, including what many presidents see as a blurring of responsibilities between the two sides that creates unnecessary distractions for boards.

Some chairmen said this, compounded by an “increasing thicket of government regulations”, was contributing to the decline in the number of companies listed in the UK.

Interviews with 35 appointed chairmen of FTSE companies – including 26 from the FTSE 100 – revealed deep frustration with their relationship as institutional shareholders, with leaders of major UK companies calling for a reassessment of the way they work together .

Interviewees included Sir Douglas Flint of Abrdn, Paul Manduca of St James’s Place, Andrew Duff of The Sage Group, Mark Tucker of HSBC, Sir Donald Brydon of Tide Holdings and Annette Court of Admiral Group.

Other chairmen who participated in the report were Stuart Chambers of Anglo American, Cressida Hogg of Land Securities and Don Robert of the London Stock Exchange.

HSBC’s Mark Tucker. The Tulchan report warned that engagement with shareholders was being eclipsed by a mechanical ‘checkmark’ process © SeongJoon Cho/Bloomberg

The report also warned that engagement with shareholders about strategy and performance was being overshadowed by a mechanical “box-ticking” process, where investors vote on board resolutions “based on detailed and prescriptive rules on issues that are not always critical to long-term business success.”

The chairmen have argued that investors should instead delegate responsibility to boards of directors as guardians of companies’ long-term success.

Some have pointed out that the discretion in board decision-making provided for in UK corporate governance codes under the ‘comply or explain’ regime has been eclipsed by a ‘narrow focus and sometimes contradictory on conformity”.

The chairmen of a number of FTSE 100 companies launched the survey due to frustration with what they saw as a decline in the quality of engagement with their major shareholders in recent years. Many pointed out that they see a range of quality in engagement with their shareholder base, from outstanding to deeply frustrating.

Cressida Hogg of Land Securities

Cressida Hogg of Land Securities. Many chairmen have complained about the tendency of shareholders to use third-party proxy voting agencies © Landsec

Many have also complained about the tendency of shareholders to use third parties proxy voting agencies “outsource” voting decisions on board resolutions. The presidents have called for proxy voting agencies to come under an officially supervised code of conduct.

There was also common confusion over the proliferation of ESG standards and dashboards against which companies must report, and a desire for greater investor consistency in this area.

A number of institutional investors were also interviewed to address these concerns, including Richard Buxton of Jupiter Fund Management and Andy Simpson of Schroders.

Investors disagreed with many of the specific criticisms voiced by the chairmen, but acknowledged there were issues to discuss and agreed that shareholder interactions with UK companies had changed in recent years.

This is partly due to the decline in the share of investment portfolios allocated to UK equities, according to the report, and the resulting decline in resources and time spent engaging with portfolio companies.

The report calls for a dialogue between a representative group of chairmen of limited companies and a similar group of institutional investors, “with a view to clarifying points of contention and seeking common ground”.

Mark Burgess, Partner at Tulchan Communications, said: “With ever-increasing governance demands placed on fewer and fewer institutional resources, it’s no surprise that engagement is no longer working effectively. A reassessment – ​​as well as a greater allocation of pension funds to UK equities – is needed.

Robert D. Coleman