xyz Pension Scheme,
Stewardship and Engagement
I have followed with interest the developing debate on the obligations associated with the ownership of shares, which started with the Myners Report, continued with the Walker Report on the banking crisis and has culminated in the UK Stewardship Code. Most recently I have been reading coverage on these issues in the Financial Mail on Sunday.
It seems to me common sense that long-term owners such as pension funds have a duty to ensure the well-being of the companies in which they invest. The alternative is not very palatable: I am one of many to have lost money as a result of the shareholder value destruction that followed Marconi, the dot com bubble, and the banking crisis.
I would like to ask how seriously you are taking your stewardship obligations. I am pleased to see that you have signed the Stewardship Code but I would like to understand what this means in practice. Some pension funds claim to be good stewards when all that they do is to instruct a third party to recommend how they vote on resolutions at the annual general meeting of their company. This is better than nothing but it is not the same as good stewardship. In this regard I would in particular draw your attention to the recent report by Tomorrow’s Company on Tomorrow’s Stewardship, Why Stewardship matters.
I would particularly like to know whether stewardship quality is an explicit part of this scheme’s criteria for assessing fund managers both in awarding mandates and subsequently. Do you recognise that the stewardship of assets under investment is an essential aspect of risk management and how do you satisfy yourselves that our fund managers do this? Also, I would be keen to understand how the scheme ensures that the pay of fund managers is structured so that they take the long-term view required for pension scheme assets rather than the short-term view so prevalent in the City. How often do you review investment performance? Is there a danger that the short interval between these reviews creates undesirable pressure on fund managers to trade shares rather than engage with companies to improve their performance?
I look forward to your reply.