By Chuck Epstein
A coalition of global financial firms, including asset
managers and asset owners, with assets of more than $17 trillion, has launched
a new initiative to formulate a set of principles governing the stewardship of
investments and corporate governance.
The new Investor Stewardship Group (ISG) is designed
to improve governance standards and practices among US asset managers and asset
owners, including corporate and state pension funds.
The ISG’s framework of corporate governance principles
“reflects the common corporate governance beliefs that are embedded in each
member’s proxy voting and engagement guidelines, and are designed to establish
a foundational set of investor expectations about corporate governance
practices in US publicly-listed companies,” the group said.
While this may be the first time asset managers and asset owners have come together to
formulate a set of corporate governance principles, the idea is to launch a framework for US stewardship and governance, “a historic, sustained
initiative to establish a framework of basic standards of investment
stewardship and corporate governance for US institutional investor and
boardroom conduct,” according to the group’s website.
of the ISG include BlackRock,
CalSTRS, Florida State Board of Administration (SBA), GIC Private Limited
(Singapore's Sovereign Wealth Fund), Legal and General Investment Management,
MFS Investment Management, MN Netherlands, PGGM, Royal Bank of Canada (Asset
Management), State Street Global Advisors, TIAA Investments, T. Rowe Price
Associates, Inc., ValueAct Capital, Vanguard, Washington State Investment
Board, and Wellington Management. The ISG said this group represents the
long-term savings of millions of investors worldwide.
While the ISG is just now being launched, corporate
governance standards in the UK were established by the Cadbury Report and its Corporate Governance Committee in May 1991 by the Financial Reporting
Council, the London Stock Exchange and the accountancy profession. What
prompted the report was “continuing concern about standards of financial
reporting and accountability,” according to the group’s website. The Cadbury Code “is widely seen as the first
comply-or-explain governance code” in the UK, and covered such issues as gender
diversity, board composition and performance, and the dissemination of
The ISG’s goal is to establish “initial standards [that]
focus on corporate governance principles for listed companies and investment
stewardship principles for institutional investors. Taken together, the
standards form a framework for promoting long-term value creation for US.
companies and the broader US economy.”
Developed over two years, the ISG Framework goes into effect
January 1, 2018, to give US companies time to adjust to these standards in
advance of the 2018 proxy season. The specifics about the framework can be seen
at the group’s website.
The impetus for forming the ISG began in the fall of 2014,
when asset owners questioned proxy voting procedures and raised issues about
whether asset managers were blindly following proxy recommendations from proxy
advisory firms. Had this been the case, it would have violated corporate
governance standards, but it was a misperception, according to Rakhi Kumar, Head of Corporate Governance at State
Street Global Advisors.
This misperception in the institutional marketplace pointed
to the need for improved transparency and establishing a framework for
corporate governance standards.
But establishing common corporate governance standards in
the US also faced another hurdle: governance standards are determined on a
state-by-state basis depending on where a company was incorporated. While there
were core beliefs among institutional investors and global asset managers,
there still was a need for a common corporate governance principles platform to
This would allow corporate boards and institutional asset managers
to have easy access “to clear, accessible governance standards that are all in
one place,” corporate governance advisory board member Allison Bennington said.
While the ISG intends that its “governance prescriptions are
not intended to be prescriptive or comprehensive in nature,” according to its website,
the group also will not go into specific regulatory issues, such as the DOL’s
fiduciary standard regulation. “We are saying this money belongs to other
people and you have specific policies in place already in terms of
accountability. We are trying to achieve accountability. There is no intent to
go into the legal realm of fiduciary rules. The ISG stops at board
accountability to shareholders and to financial beneficiaries. It is not meant
to apply to any current or proposed regulations,” Bennington said.
“We are starting a long-term effort to get asset managers
and owners to sign onto the principles and accountability from a corporate
governance guide. Wewe are all on the same page and US public companies will
come to be on the same page with their shareholders, as well.
What we have now is a basic corporate governance standard
that is not radical. We believe these are principals that will foster the
long-term concept about the stewardship of capital, and transparency to
shareholders and retirees. These are policies that are understandable and work
towards the benefit of all public companies, their boards and institutional
investors,” Bennington said.
The ISG initially will be a virtual organization and will
conduct its meetings online, but over time it may have a physical presence in a
location that is yet to be decided, Bennington said.