Relationship between FTSE boards and asset managers badly deteriorating

The State of Stewardship report from Tulchan interviewed the chairs of 35 FTSE companies, including 26 from the FTSE 100, and saw them lash out against investors for what they called a “lack of alignment between their objectives and those of their shareholders”.

The chairs pushed back against ‘activist investors’, arguing that “box ticking” exercises over stewardship were distracting companies, and those responsibilities should be delegated to boards.

“People run companies, not rules, and boards succeed because their leadership is good,” said one anonymous chair, stressing that they believed shareholders should be focusing on appointing the best leadership possible, rather than “adding layer upon layer of micro-regulation”.

Those interviewed included abrdn’s Douglas Flint, Shell’s Andrew Mackenzie, HSBC’s Mark Tucker and the London Stock Exchange’s Don Robert.

The chairs also expressed their frustration at the “fragmentation of their investor base”, as different funds and fund managers now often argue for disparate views as shareholders.

This was attributed to the sharp decline of UK equities in defined benefit pension funds, declining from about 55% in the 1990s to just over 2% today.

Another key target of ire was the choice of shareholders to use third-party proxy voting agencies to “outsource” voting decisions, arguing that these should fall under an officially supervised code of conduct.

ESG targets and scorecards were a particular problem, with the widespread confusion over standards and lack of investor consistency that came from often relying on proxy voting agencies.

Some institutional investors were also surveyed for the report, including Andy Simpson from Schroders and Richard Colwell from Colombia Threadneedle, who pushed back against many of the specific criticisms from the chairs.

The report concluded: “If one message emerges loud and clear from interviews recorded in these pages, it is that engagement between UK boards and their shareholders is not working as it should.

“A substantial number of FTSE chairs believe it is time for a reappraisal of the relationship between their boards and their shareholders.

“Leading institutional investors agree that their interactions with UK companies have fundamentally changed in the past few years, and that there is a widening gap between investors maintaining best engagement practices and those seen as falling short.”