Financial crisis, Governance reforms, UK's Stewardship Code

Question 1

What is the UK Stewardship Code?

Answer 1

• Introduced in 2010
• Followed financial crisis
  Aims:
• Enhance quality of engagement between institutional investors and companies
• Ensure that business strategies are aligned with long-term shareholder value

Question 2

What are the key features of the UK Stewardship Code?

Answer 2

• Encourages investors to be more active and engage in corporate affairs, promoting long-term value
• Based on ‘comply or explain’, shifting to ‘apply and explain’ to enforce more accountability
• Requires detailed disclosures on stewardship activities, voting behaviour, management of conflicts of interest

Question 3

Example of revision/ updates to the Stewardship Code?

Answer 3

2020 revision of the Stewardship Code: Introduced more rigorous requirements for reporting and accountability, making it more prescriptive and detailed in terms of expected stewardship activities and outcomes.

Question 4

Critical views of the effectiveness of the Stewardship Code?

Answer 4

• Do investors truly engage in a way that promotes long-term value creation or if activities remain box-ticking excersises.
• Voluntary nature of compliance allows for superficial adherence without meaningful changes in corporate governance practices.

Question 5

Evidence for critical views on effectiveness of Stewardship Code?

Answer 5

Research indicates mixed results on impact of stewardship activities:
- Some studies showed improved governance
- Others indicated minimal effects on corporate performance and decision making

Question 6

Example of Stewardship in practice?

Answer 6

Barclays PLC: Shareholder engagement led to significant governance changes aimed at enhancing long-term shareholder value post 2008.

Question 7

What two CG theories can be applied to Stewardship in practice?

Answer 7

• Agency theory
• Stewardship theory

Question 8

Agency Theory on Stewardship Code?

Answer 8

Agency Theory suggests that better oversight by informed and engaged shareholders can mitigate the agency costs of delegated management.

Question 9

Stewardship Theory on the Stewardship Code?

Answer 9

Stewardship Theory posits that managers, when effectively monitors and incentivizes, can be trusted to act in the shareholders’ best interests, aligning management actions with broader organizational goals.