Rules, Regulations, Codes and Cultures

15 July 2012

Sarah Wilson

EU regulation

Another week, another consultation deadline in the world of responsible investment - last week the FRC's consultation on the Stewardship Code. With so many column inches being taken up with coverage of scandals which have shaken the very bedrock of financial and investment services, we might well wonder if fine tuning the way that investors report their Stewardship activities is a little like fiddling while Rome burns.

But that might in fact miss a very valuable point. Stewardship is, in essence,being responsible for looking after something on behalf of someone else. Whether you're a pension fund trustee, an investment manager or a FTSE100 bank executive director, you're a steward because you answer to someone else in what you do. And that's why the Stewardship Code consultation couldn't have come at a better time.

The watch word emanating from the Wilson Room this week was 'culture', a word that has echoed and resonated with increasing volume. Stewardship needs to be ingrained at the very heart of industry-wide 'culture'.

A cursory perusal of the current Stewardship Code responses from investors illustrates just how wide the gulf is between those who get it and those who don't. Critics of Barclays shareholders together with those who clamour to see greater committment to socially responsible investing both argue for greater oversight and positive influence from investors. That means making stewardship a facet of the investment vocabulary every bit as instinctive as investment returns and rewards. 

How do we do that? Well, Manifest's response to the FRC identifies two opportunities.

One is to beef up the incentive implications of good stewardship by bringing the term "fiduciary responsibility" into the lexicon of stewardship. In other words, acknowledge that constructive stewardship activity is a 'must do' rather than a 'nice to have'. That is not to suggest that we are seeking to make the Stewardship Code a compliance requirement; it is to suggest that all participants in the investment chain should be expected to take seriously their part in ensuring that those that report to them are being good stewards - through mandates and monitoring.

The other is to acknowledge the fact that stewardship is a concept that should be applicable universally across the full range of investment disciplines. Thus far it has all too frequently been tagged on to corporate governance and voting, perhaps because the Stewardship Code has its origins in the theme of the role of shareholders, interwoven with the development of the UK Corporate Governance Code. However (and here's the rub), if stewardship is applied across all investment disciplines (bonds, infrastructure, commodities and yes, even derivatives, shock, horror) and all investment considerations (from financials to sustainability), it can't easily be shovelled into the corner of the office with the proxy voting geeks, away from the prying eyes of auditors, conscientious clients and nervous compliance officers.

So there's an opportunity here to ride the wave of popular ansgt into every corner of our investment culture. Are we brave enough to do it?

FRC Stewardship Code Consultation

Manifest Suggested Revisons to Stewardship Code

Manifest Supplementary Explanation

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