Pension investors responsible for a collective £150bn in assets are seeking to engage positively with policymakers to ensure shareholder rights are protected in capital markets reforms.
The government and regulators do not need to water down corporate governance rules in pursuit of economic and financial market growth.
This is the message from a new campaign led by some of the UK’s biggest pension funds and asset owners who are seeking to engage positively with policymakers to help shape capital markets reform.
The Governance for Growth Investor Campaign is being led by Railpen, Brightwell – which runs the BT Pension Scheme – The People’s Pension, the Church of England Pensions Board, and Brunel Pension Partnership.
Recent rule changes relating to listings and other elements of capital markets have led some commentators to warn that shareholders’ ability to influence corporate behaviour could be restricted.
Last year, Railpen criticised changes made to the Financial Conduct Authority’s (FCA) listing rules, including the removal of the need to put “significant or related party transactions” to a shareholder vote.
Reports have circulated this year that the government was considering scrapping separate proposed reforms to audits and corporate reporting.
The FCA is currently reviewing its rulebooks to identify areas that can be amended or removed in an effort to promote growth, in response to a request from the government.
‘Shareholder rights protections don’t hinder growth’
Caroline Escott, head of investment stewardship and co-head of sustainable ownership at Railpen, praised the government’s drive to increase economic growth through reforms to multiple sectors including pensions and financial services.
However, she added that there was a “misperception” that corporate governance rules and shareholder rights mechanisms were hindering growth, rather than “providing the UK with a key differentiator and supporting long-term value creation in the interests of everyday UK savers”.
Escott continued: “Our campaign group of leading UK pension funds, who are already extensive investors in the UK economy, will instead put the evidence-based, ‘governance for growth’ case to policymakers, and will work with others across the industry to highlight how good governance goes hand in hand with a growing economy and thriving capital markets.”
Wyn Francis, chief investment officer at Brightwell, said: “Strong governance shouldn’t be viewed as a barrier to growth but a catalyst for it.
“This initiative is about making sure our voice is heard in shaping the future of capital markets because good governance isn’t just good practice, it’s good business.”
Wyn Francis, Brightwell
“Well-run companies that are transparent and accountable are more likely to succeed over the long term. That’s how we deliver sustainable returns for members and support a thriving UK economy.
“This initiative is about making sure our voice is heard in shaping the future of capital markets because good governance isn’t just good practice, it’s good business.”
Boosting the UK’s capital markets
Initial public offerings have been declining for several years, with private equity funds increasingly active in taking listed companies off the market. In addition, several companies have chosen to move their primary listing destination to the US rather than the UK.
In response, the government and the FCA have sought to overhaul listings rules and cut so-called “red tape”, in an effort to encourage more companies to set up or stay in the UK.
The Governance for Growth campaign argues that shareholders can also have a positive impact on corporate growth and be champions for the UK’s capital markets.
It is calling for pension schemes to be given “a seat at the policy table”. It plans to engage proactively with the forthcoming Audit Reform and Corporate Governance Bill to ensure shareholder rights and protections are maintained.
This is particularly important, the campaigners argue, given the government’s desire for pension schemes to invest more in their home markets.
The campaigners believe that other jurisdictions rolling back shareholder rights rules present the UK with an opportunity – by maintaining its strong frameworks – to become a “destination of choice for stable policy, high-quality companies and sustainable economic growth”.
The campaigners say they are “particularly encouraged” by the government’s plan to introduce a listings taskforce to support businesses to list and grow in the UK.
“As longstanding, pragmatic investors, pension schemes know how to support and grow companies through to maturity,” they stated, adding that their collective knowledge and experience can support other government policies to boost investment.
Selling the UK’s positive investment story
Railpen’s Escott said: “UK pension schemes naturally want to see our capital markets succeed, ensuring we can access well-run, high-performing companies that help deliver good outcomes for members and the economy more broadly.
“Our fiduciary duty means we’re in a unique position in the financial system, motivated purely by everyday savers’ interests and delivering over the long-term, rather than short-term fee generation.
“At a time when government is urging UK pension schemes to boost the economy, it’s fundamental that we have a seat at the capital markets and corporate governance policymaking table to make the case for sustainable growth.”
She added that the pension schemes involved in the campaign wanted to help “tell an optimistic story that gets people excited about investing in Britain because of its governance standards”.
“Our involvement will also add substance to these initiatives by integrating investor-to-investor knowledge and understanding into the discussions,” Escott said.
Don’t forget lessons of the past
Some of the capital markets rules currently being revisited were introduced following the financial crisis of 2007-09, while more recent corporate governance and audit rules followed the scandals surrounding companies such as Carillion and BHS.
“It’s essential that owners of capital come together to proactively engage with UK policymakers on key corporate governance issues that will impact millions of savers.”
Leanne Clements, People’s Pension
John Ball, chief executive officer at the Church of England Pensions Board, explained: “While ensuring an efficient market is vital to the government’s growth agenda, it is also important that we do not throw away the lessons learnt of good corporate governance and of past corporate failures and financial crises.
“This campaign places good corporate governance at the heart of an agenda to support long-term sustainable growth in the UK. The UK can be the home of best practice and corporate governance, attracting both domestic and international investment in well-governed companies.”
Leanne Clements, head of responsible investment at the People’s Partnership, added: “Now more than ever in this complicated policy landscape, it’s essential that owners of capital come together to proactively engage with UK policymakers on key corporate governance issues that will impact millions of savers.”
