HISTORIC PRESS RELEASE : Government welcomes industry initiative on shareholder activism [October 2002]

The press release issued by HM Treasury on 21 October 2002.

The Government today welcomed publication by the Institutional Shareholders’ Committee of a new statement of principles setting out strengthened responsibilities of institutional shareholders and agents. This outlines best practice on the part of institutional investors to promote their members’ interests through more active engagement as shareholders.

Financial Secretary to the Treasury, Ruth Kelly, said:

“The Government has a clear objective to promote more active engagement by institutional shareholders in relation to companies in which they invest. Such engagement will build stronger companies and better returns for investors and members of pension funds.  The industry’s new principles are a major step, which we welcome. However, the key test will be the impact on industry behaviour.  We will monitor progress closely.”

Department of Work and Pensions Minister, Ian McCartney, said:

“I warmly welcome this statement from the Institutional Shareholders’ Committee. Pension scheme trustees and other clients of institutional shareholders need to be able to satisfy themselves that all is being done to act in their best financial interests, and intervention in investee companies is a crucial factor in achieving this aim. Trustees will benefit by gaining a keener insight into what is being done to enhance share value, and they will therefore be better placed to make important investment decisions.”

The Government has previously consulted on possible legislation to underpin institutions’ obligations to promote their beneficiaries’ interests through shareholder activism.  However, the Government welcomes the Committee’s proposal to seek to drive through an approach based on best practice, and to review the impact of the principles after two years. The Government will at that point review whether this non-legislative approach has been successful in delivering change.  The test will lie in the impact on behaviour.

The Government also welcomes the industry’s proposal that the new principles should be included in industry fund management contracts.  The Government will review the extent to which this has taken place as part of its forthcoming review of implementation of the Myners investment principles, due in March 2003.