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

LONDON, July 22, 2011 -

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:

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

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