LGIM Says Institutional Activism Will Improve on Heels of Stewardship Code

(October 14, 2010) — Legal & General Investment Management (LGIM) says the UK’s Stewardship Code will improve collective engagement among asset owners, giving institutional investors greater oversight in the boardroom.

The code has urged for more collective engagement. LGIM’s Head of Corporate Governance Andy Banks stated in a release: “We do feel there is a receptive environment for more collective engagement. Investors are keen to do it and engage together. Companies should expect to be meeting groups of investors in the future.”

LGIM added that while relations between institutional investors and company management has faced difficulties in the past, the financial crisis has helped spur a new environment for corporate governance, stressing the role of non-executive directors in challenging management decisions. He urged companies to be more proactive in scrutinizing succession planning to maintain long-term value for shareholders.

“The financial crisis exposed material shortcomings in the incentive, risk management, and internal control systems of many companies,” stated Banks, noting that good corporate governance is the most likely way to build shareholder value over the long term. “Cultural issues also surfaced, with excessive short-term risk taking being promoted over long-term value creation.” LGIM said that five key areas of corporate governance are back on the table for review – collective engagement, the role of the non-executive directors, board evaluation and succession planning, regulation and remuneration.

LGIM complies with the UK Stewardship Code and has also signed up to the UN Principles for Responsible Investment.