The review challenged the industry to move institutional investors away from the mindset of trading stocks, to one of owning them, and becoming engaged investors.
The report pushed for more progress to be made on all of Kay’s recommendations, but there remain questions as to how workable his idea for an Investors’ Forum is.
Kay recommended establishing an Investors’ Forum, bringing investors together to take collective action to improve the performance of a company.
The government accepted the proposal. Now there’s the question of how this could work in practice. Invesco Perpetual’s Neil Woodford highlighted a fundamental issue in the report, saying: "Investors are not good at coming together and talking about investment issues. Corralling investors is a bit like herding cats. It is very difficult to get investors even to agree to meet on a particular subject, even if it is particularly egregious.”
The report added that any forum would need to overcome concerns of it constituting market abuse or acting as a concert party in view of a takeover bid.
A working group is currently considering potential structures for the forum that can overcome these challenges, and is due to report on them at the end of the month. It is being driven by the Investment Management Association, the National Association of Pension Funds and the Association of British Insurers. Members of the working party include fund managers, pensions managers and corporate governance specialists.
Daniel Godfrey, chief executive of the IMA, said: “Whilst there is already much excellent practice in the industry and there are already groups that enable investors to work together when appropriate, the Working Group has been asked to consider ways in which the practice of engagement by investors could be further broadened and improved.”
The IMA highlights that there is a precedent for investors working together, and says that as part of a trade body, they are already able to come together as long as there is clarity of purpose, a specific remit and shared interests.
The report also pushed for an accelerated timescale for a legal definition of fiduciary duty, a timetable for major investors to be consulted about all board appointments, more long-term remuneration of executives and fund managers, more progress on scrapping quarterly reporting and improving narrative reporting, development of the Stewardship Code and consideration of a Financial Transaction Tax.
