Media Briefing Note: Expected outcome of FRC consultation on the Stewardship Code

LONDON, 30 June 2010 -


On 2 July, the Financial Reporting Council (FRC) is expected to publish the outcome of its consultation on the "Stewardship Code", which will sit alongside the new Corporate Governance Code.  Copies are expected to be made available to journalists under embargo on 1 July.


Law firm Hogan Lovells has a dedicated Corporate Governance Unit and head of the unit, partner Frances Le Grys, is able to comment on the FRC's response to the consultation.



Frances Le Grys, Partner

Hogan Lovells Corporate Governance Unit

Tel: 020 7296 2781




Rachael Droog

Hogan Lovells PR Coordinator

Tel: 020 7296 2780



Additional details

In November 2009 Sir David Walker recommended that institutional investors be asked to adhere to a code of best practice in stewardship of UK listed companies, following which the Government asked the Financial Reporting Council to take responsibility for a Stewardship Code.


In January 2010 the FRC consulted on whether  the Code on the Responsibilities of Institutional Investors issued by the Institutional Shareholders' Committee (ISC) could be adopted in its current form, or whether amendments should be made. Views were also sought on which institutional investors and agents should be encouraged to apply the code, what they should be asked to disclose and to whom, whether the "comply or explain" basis was appropriate and the monitoring arrangements that should be put in place.


Key points arising from the consultation process are:


•           Coverage of the Code.  The Code will be directed at institutional shareholders and those who act as agents, but views were being sort on whether voting services agencies and investment consultants should also be encouraged to commit to the spirit of the Code;


•           Overseas shareholders - the FRC are asking non-UK shareholders in UK companies whether they would be prepared to commit to the new Code and what barriers they face in doing do.  Given that the equity capital markets are international it seems necessary that institutional investors outside the UK do subscribe to the Code and that the Code is produced with that in mind;


•           Investors are not encouraged to micro-manage, but would need to set out clear guidelines on how they will monitor investee companies and, if necessary, 'escalate their activities as a method of protecting and enhancing shareholder value'.  Both investors and issuers need to consider what forms of escalation are likely to be productive and effective;


•           Institutional investors are to be encouraged to act collaboratively on occasion.  In the UK the Takeovers Panel and the Financial Services Authority (as regards the market abuse directive) have taken steps to clear the way for collaboration;


•           Institutional investors are asked to report periodically on their stewardship and voting activities and consider an independent audit opinion on their engagement and voting activities;


•           Issuers may need to scale up their investor relations departments and be prepared to spend time (and money) actively engaging with a wider variety of investors than they may be used to.


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