Shareholder activism is set to grow further

INSTITUTIONAL investors are taking an increasingly active role in the firms in which they invest, according to new research that shows the changes in attitude that paved the way for the shareholder spring.

Investors are more likely than ever to demand firms provide clarity on long-term strategy and redraft executive pay deals to incentivise good performance, according to a report published today by the Investment Management Association (IMA).

Liz Murrall, director of corporate governance at the IMA, told City A.M.: “Numerous studies show that good governance delivers good returns over the long term. Few people want to invest long-term in a badly governed company.

“Clients are expecting more of their fund managers. But managers already were quite active. We’re establishing a benchmark.”

The IMA’s report includes responses from 58 asset managers who manage £774bn of UK equities – representing almost half of the UK market. Their responses were judged against the Financial Reporting Council’s (FRC) stewardship code for investors.

It reveals that the resources committed to corporate governance increased by four per cent in 2011, with an average of 19 staff employed to deal with financial stewardship at each institutional investor.

In addition, it shows that the number of institutional investors who exercised their voting rights on all UK shares increased from 81 per cent in 2010 to 86 per cent last year.

There has also been a substantial jump in the number of institutional investors who make their voting record public.

But the IMA found that investors’ voting record on overseas shares remains poor.

The report is based on responses from 83 institutions covering the period up to 30 September last year. Since then five firms’ remuneration reports have been defeated in the shareholder spring while Andrew Moss, the chief executive of Aviva, stepped down after shareholders voted against the pay report.