21 May 2002
CIMA has urged the Government to rethink its approach to enhancing shareholder activism. CIMA research involving 40 of the largest UK institutional fund manager groups shows how they regard regular contact with senior management in companies in which they are invested as being extremely important. CIMA research reveals that only the top fund managers have the power to exert significant influence over the larger FTSE companies. They have opportunity for higher levels of voting and more direct participation in AGMs as well as informal influence.
The proposed legislative approach does not recognise the fact that there is regular, active interaction between fund managers of large institutional investors and company directors. Private meetings are used to discuss issues of strategy, management quality and to understand the intangible value drivers behind corporate performance. Such issues are generally too complex to reduce to an AGM vote. A regulatory framework is unlikely to guard against the passivism of fund managers of smaller institutions and may lead them to be negative and characterised by actions which try and avoid being sued rather than actions that truly add value or enhance the value of investments. CIMA has developed a model to help medium and smaller sized fund managers develop their activism by comparing what they do, and intend to do, using the aggregate experience of the largest fund managers. The model helps them consider the circumstances in which they should intervene in a company, the degree of intervention and the approaches that they should use.
Better corporate disclosures should also assist fund managers in their efforts to understand corporate performance and to ask the right questions. CIMA fully supports the proposals in the Company Law Review to introduce a mandatory operating and financial review for listed companies as a key part of their annual report. There needs to be greater reporting from companies on the intangible assets that are behind the corporate value-creation process, and are not captured in company financial statements and the major strategic risks facing a company. Such information should facilitate the influence of both fund managers of larger and smaller institutions and private investors.
CIMA proposed an approach to enhancing shareholder activism that is based on widely agreed principles of investment decision making. As with the Combined Code, fund managers and trustees should ‘comply or explain’.
If you would like more information please contact Stathis Gould
Phone: +44 (0) 20 8849 2379
Email: stathis.gould@cimaglobal.com
