New corporate governance code needs investor engagement to deliver results


Ashley Hamilton Claxton, Head of Responsible Investment

16 July 2018

We welcome many of the changes that have been made in this update to the UK’s governance regime.

Ultimately though, tangible results will come from institutional investors who have the potential to drive change through their power as the ultimate owners of companies. Shareholders must hold companies accountable for the provisions in the Code through both voting and engagement.

Many of these changes codify what’s already best practice in boardrooms, from the board’s responsibility to review workforce remuneration when setting executive pay to considering the views of key stakeholders. The requirement for a five year shareholding period for share awards is an example of this. We welcome the stronger requirements for management to continue to hold shares after they leave the company. This will provide better long-term alignment with shareholders.

The greater focus on company culture and employee relations are both positive steps, particularly the requirements on boards to demonstrate how they are delivering on these. In addition, as active investors in smaller companies, we support the extension of independence and board evaluation requirements, but acknowledge that they may need a greater degree of flexibility.

Past performance is no guide to the future. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.