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IR Society Response to Stewardship Code Review Consultation

Thank you for giving us the opportunity to comment on your Stewardship Code consultation. This response is made on behalf of the UK’s Investor Relations Society (‘the IR Society’).

The IR Society represents Members working for publicly listed companies and investor relations focused service providers, to assist them in the development of effective two-way communication with the markets. It has approaching 800 Members, drawn mainly from the UK, including the majority of the UK FTSE 100, many of the FTSE 250 constituents and some from companies listed overseas.

The IR Society’s mission is to promote best practice in investor relations; to support the professional development of its Members; to represent their views to regulatory bodies, the investment community and Government; and to act as a forum for issuers and the investment community. Our response has therefore been primarily constructed through the lens of a corporate issuer, and as such reflects the views of those very much at the ‘coal face’ of investor engagement, along with some examples of practical experiences and challenges that a review of the Stewardship Code could help to address.

We set out below our general comments on the aspects of most relevance to our Members, and we then reflect these views in answering some of the specific questions, but omitting questions 5 and 9 which we do not feel qualified to comment on.

General comments

Overall, the IR Society views the proposed changes as being very positive and will help address a number of current and practical concerns.  As our membership is made up of issuers whose shareholders are signatories, members experience the impact of the Stewardship Code directly in terms of their engagement, dialogue and reporting processes with many of their major shareholders.  This also extends to members from service providers who advise and support listed issuers on their engagement with stewardship teams and proxy advisers, as well as on broader governance matters.

We have two areas of focus in this response.  Firstly, that there is improved transparency from asset managers and owners as to what their core stewardship issues are, both historically and also forward looking.  This will greatly enhance clarity and the ability to focus our dialogue on what an issuer’s stakeholders deem material.  We believe the proposals for streamlined reporting which avoid repetition should also support greater clarity in these areas, by allowing stewardship reports from a manager to provide a readily understandable guide to their approach and perspectives.

Secondly, and perhaps most importantly, we would advocate greater obligations are placed on proxy agencies regarding their engagement with and expectations from issuers.  This would help address an issue which has been of very longstanding concern to many corporate issuers.   

Whilst many of our members have excellent relationships and experiences with proxy agencies, there are sufficient concerns and examples from our membership for this to be an area we believe needs to be addressed and so are very pleased that this has been highlighted in this consultation and review.  When combined with effective and transparent digital disclosure of material data points by issuers and the building of direct long-term relationships with investors (including their stewardship teams), we believe the objectives of the revised definition of stewardship will be well served.

In response to Question 6, we have set out a number of proposals in relation to the role of proxy agencies, as we believe successful stewardship and dialogue on long-term value creation is sometimes challenged by the way that communications are manged by proxy agencies with issuers and the service providers who advise listed companies on these matters.  A more consistently collaborative and constructive approach would be strongly welcomed by issuers together with some guidance within the revised principles. 

We would be very happy to engage further on this particular point and on our proposals, alongside examples from our members of impractical turnaround deadlines, lack of right to reply, lack of sharing of draft or final proxy reports, and no practical accountability of proxy advisers when challenged.  

Answers to specific questions

1. Do you support the revised definition of stewardship?

The consultation proposes a new definition of stewardship, which is intended to support better and more transparent conversations between those in the investment chain about their investment beliefs and objectives, and how their stewardship supports these.

The IR Society supports the proposed new definition, which we believe represents a pragmatic evolution that provides a good description of currently existing stewardship practices.  We note the focus on the relationship between monitoring material sustainability risks and investors’ fiduciary duty together with the important emphasis on the role of systems stewardship and collaborative engagement. Stewardship is best served where issuers report, and their investors focus, on material and long-term drivers of value creation.

2. Do you support the proposed approach to have disclosures related to policies and contextual information reported less frequently than annually? If yes, do you support the approach set out above?

The IR Society supports the move towards streamlined Stewardship reporting requirements, so that signatories report ‘dynamic’ (rather than ‘static’) information and highlight areas of change. We believe frequency such as triennial reporting may be more appropriate in a number of cases (e.g. in the case of the Policy & Context Disclosure), to help avoid the situation where investors need to carry out repeat due diligence in order to re-report information, even if nothing has changed.

We also note the consultation aims to clarify reporting duties, proposing that reporting is focused on key themes/issues and engagement priorities (including any escalation and progress), with new prompts and guidance for signatories to the Code to help them produce more meaningful reporting.

The IR Society supports the proposals for reporting of key themes and issues, how they are prioritised and engaged across asset classes. It also supports reporting on engagement with issuers regarding key market-wide and systemic risks, including the reasons for engagement, any escalation and progress made. This will make it easier for IROs and corporates to review stewardship reports from their significant investors to identify their key issues which will enhance future dialogue.

3. Do you agree that the Code should offer ‘how to report’ prompts, supported by further guidance?

We believe that while the Code itself should not be too prescriptive in its prompts to allow for flexibility in its application where this best serves understanding and transparency, further best practice guidance developed in conjunction with experienced practitioner input would be beneficial.

4. Do you agree that the updated Code for Asset Owners and Asset Managers should have some Principles that are applied only by those who manage assets directly, and some that are only applied by those who invest through external managers?

We agree that there are important differences between these two groups and some distinction should be made where relevant between the stewardship responsibilities of their respective roles.

6. Do you agree that the updated Service Providers’ Code should have some Principles that are applied only by proxy advisors, and some that are only applied by investment consultants?

We note the proposed new principles and guidance for proxy advisors cover the quality and accuracy of their research and voting recommendations, and how they have responded where stakeholders have requested to engage.

We strongly support the proposal for a separate Principle for proxy agencies as we believe this should improve their transparency around a) the accuracy of their research and b) their engagement with issuers, which should ultimately improve the data available to investors.   

In order to help avoid or resolve disputes between proxies and companies on discrepancies in reports and recommendations, we would suggest the Code is strengthened further by introducing a requirement for all proxy agencies to consistently report on:

  • how they have engaged with companies to ensure that contextual factors are considered and taken into account when issuing research reports and voting recommendations, and
  • the measures taken to ensure that companies have an appropriate amount of time to review and respond to proxy reports and vote recommendations, noting any exceptions.

These measures could include:

  • publishing the data on which they are basing their recommendations and giving issuers the right to challenge/request the source of data used;
  • guaranteeing a seven-day window for companies to respond to draft research reports written about them, prior to publication and providing advance notice to the issuer of when their input will be needed, to allow issuers to have teams mobilised in advance of proxy requests for verification, which can help manage any tight deadlines; (we refer in the appendix to a practical example of the challenges our members have experienced when dealing with proxy agencies);
  • making draft and final research reports available free of charge to the relevant issuer, which is not current practice at all proxy agents;
  • proactively seeking out companies on which they are reporting to schedule an annual meeting outside the AGM season, given such ‘out of cycle’ engagement can prove successful in improving the accuracy of reports, for example, by allowing the issuer to provide some understanding of why they have not complied with the Code (for instance, no female chair/SID);
  • only judging UK quoted companies by the principles of whichever governance code they have chosen to adopt (rather than by the principles of another code); and
  • not subjecting UK companies to more stringent or exacting standards than companies whose shares are traded in other jurisdictions, without express justification.

We would also suggest consideration be given to introducing a system to assist in resolving disputes between proxy agents and companies on discrepancies in reports, such as a ‘whistleblowing regime’ whereby investors would have some responsibility and audit trail and thus hold proxy agencies to account on inaccuracies or failures to engage with issuers (see ‘users of proxies’ below for more detail).

7. Do the streamlined Principles capture relevant activities for effective stewardship for all signatories to the Code?

We don’t feel qualified to judge the success of the proposed streamlining in this way; however, we would be concerned if streamlining weakened accountability at any particular signatory group, and would support guidance on areas such as expectations on asset owners providing examples of how they hold asset managers accountable for stewardship, or how accountability for pass-through voting or AI-driven stewardship decisions is managed.  In addition, we would comment on the following:

Streamlining Principles 9, 10 and 11 - Engagement with companies and escalation of issues

We note the consultation proposes streamlining existing principles/guidance on engagement into a single principle, which we would support. While collaboration amongst investors and the escalation of issues with companies are important stewardship tools, they are each better regarded as one tool among many in the investor stewardship toolkit.

As with other such tools, collaborative engagement and escalation can and should be used when needed to support the achievement of engagement objectives over a multi-year horizon as part of ongoing stewardship activities, rather than needing to be deployed each year.

We note the consultation proposes streamlining existing principles/guidance on engagement to clarify that, whilst collaboration amongst investors and the escalation of issues with companies are important stewardship tools, these will not need to be deployed every year, and escalation should not become ‘an end in itself’ (and would no longer be a standalone Principle).

The IR Society supports these proposals, as both collaborative engagement and escalation are key parts of a broader toolkit of agreement that may be used fluidly. This change better reflects that effective engagement typically takes place on an iterative basis, over more than one reporting cycle.  We would however encourage clarity and guidance on how disclosure is made when such engagement fails.

Revised Principles/guidance/reporting for Users of proxy advisers

We note the consultation proposes that transparency by users of proxy agencies is broadened from proper voting and use of default recommendations (in 2020 Code) to how proxy advisors are used and how the quality of their services has been monitored.

The IR Society supports these proposals as this broadened transparency should result in investors providing greater clarity around, and taking greater responsibility for, the performance of their service providers.  

The IR Society would also suggest consideration be given to going further and stating that users of recommendations and/or research should be compelled to require that proxy agencies engage with issuers where requested. This could form part of a ‘whistleblowing’ regime, whereby should a number of issuers or users report issues about a particular proxy adviser to an investor, the investor is under an obligation to investigate and report on their engagement with that proxy adviser. The number and materiality thresholds for this could be determined by the investor but should be reported transparently.

The purpose of introducing such a mechanism to require investors to engage with their proxy agents should they receive a number of similar complaints from issuers, and be required to report on the issue and its resolution, would be for investors to fulfil a role which is currently missing in terms of supporting issuer complaints. 

As noted in the general comments, this is one of the greatest frustrations of the issuer community in relation to proxy advisers, in that there is no practical route to redress and accountability.

8. Should signatories be able to reference publicly available external information as part of their Stewardship Code reporting, recognising this means Stewardship Code reports will no longer operate as a standalone source of information?

We are in favour of the ability to cross reference non-material publicly available information, where it helps to streamline reporting and reduce duplication. However, material elements should be summarised within the body of the report alongside a cross reference, so that the stewardship code reports would remain readable on a standalone basis.  Issuers have operated under this structure.

We hope you find these comments useful. Please do not hesitate to make contact if you have any questions.

Your sincerely,

Liz Cole
Head of Policy and Communications
The Investor Relations Society
(Email: enquiries@irsociety.org.uk, Tel: + 44 (0) 20 3978 1980)

Laura Hayter
Chief Executive Officer
The Investor Relations Society
(Email: enquiries@irsociety.org.uk, Tel: + 44 (0) 20 3978 1980)

Ross Hawley
Chair of The Investor Relations Society’s Policy Committee
(Email: enquiries@irsociety.org.uk, Tel: + 44 (0) 20 3978 1980)


Appendix: Examples

  1. Turnaround times for responses to draft reports are often extremely tight.  It is not unusual for a report to be shared on a Friday lunchtime with responses on what is a detailed factual report running into 20+ pages required by the same time on the following Monday.
     
  2. During a contentious transaction for which two proxy agencies had issued negative recommendations, both went to the press with their findings. Critically, one of them did this before the Company had exercised its right to reply through the agreed formal channel. 
     
  3. Proxy agencies have engagement ‘portals’, rather than direct contact, which means communications can go into a void. One of our members had a situation with a recent remuneration consultation where Proxy agency personnel dialled into a call with the Remuneration Committee chair having not seen the materials that had been shared, despite these having uploaded to their portal well in advance.

Published 19 February, 2025