SIFA Strategy conducted research amongst institutional investors with high exposure to UK equities as well as global companies, with the aim of understanding investor attitudes to upcoming Corporate Governance changes, including the requirements around stakeholder engagement and culture, and harnessing views on how investment decision-making processes are and will continue to change.
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The importance to investors of understanding stakeholder engagement, corporate behaviour and culture is increasing significantly within the investment decision-making process. These governance issues will be a growing part of investor engagement and stewardship in the future. They are seen as important indicators of the long-term quality and sustainability of a business, as transparency and stakeholder influence have a greater impact on performance.
Investors are fully supportive of the forthcoming changes to the UK Corporate Governance Code. They believe it will encourage companies to reconsider their licence to operate and broader role in society, under Section 172, which will generate longer-term returns to shareholders.
Boards, in particular the Chairman and Non-Executive Directors (NEDs), will be considered ultimately responsible for these issues and the primary target for investor questioning. Investors also prefer a unified Board approach, rather than individual NEDs or committees. They see the role of the executive management team as leaders of the process and delivery.
A standard “tick-box” approach will not be accepted. Investors will expect each company to be able explain within their business model and strategy, supported by relevant evidence, how the company is treating stakeholder engagement, corporate behaviour and culture.
Investors see this as an opportunity for companies to take the lead in providing insight, clarity and differentiation on these key governance issues. It should be a pro-active process rather than a reaction to a crisis or activist event. Investors see it as a competitive opportunity for a company to demonstrate that it is well led and managed.
Having, and explaining, a strong corporate culture is deemed as critical. Investors recognise the challenge, but want companies to provide more, and different, information and insight on behaviour and culture and its interaction with different stakeholder groups.
The weight of capital moving towards this enhanced approach is significant and increasing. The majority of investment institutions are growing their internal ESG resources and engagement practices with Boards and particularly NEDs. These demands from the investor community are only going to increase in influence in the years ahead.
Please contact Madeleine Palmstierna to request a copy of the report to be sent to you on email or post or download the full report from the top of this page.