On July 2, 2011, the UK Stewardship Code celebrated its one-year anniversary. The Financial Reporting Council (the “FRC”) published the UK Stewardship Code with the aim of enhancing the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities. The introduction of a “comply or explain” based stewardship code was a key recommendation of the Walker Review to improve the standards of corporate governance in the UK market. Following this initiative and its uptake, additional principles-based codes have emerged such that increasingly one can reference an emerging global framework for the promotion of responsible and thoughtful ownership. This article will discuss recent national and regional codes and frameworks and reflect on the development of stewardship codes across regions.

Stewardship: Why Should Investors Act?

Pension fund trustees have a duty to act in the best long-term interests of their beneficiaries. Stewardship exercised through voting and engagement activities helps the realization of long-term shareholder value. Where companies have inactive or disengaged shareowners, the chances that company management will act in ways that are detrimental to shareholders’ interests are greater. Indeed, in its analysis of the Global Financial Crisis, the OECD reported that “failures and weaknesses in corporate governance arrangements…did not serve their purposes to safeguard against excessive risk taking.”¹

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