Institutional shareholders in the UK should become more engaged owners through their participation in the process of directors being nominated or removed, says think tank Tomorrow's Company.

A study recommending the move builds on Sweden's experience, and has been submitted to the Financial Reporting Council. Tomorrow's Company recommends that the Council's decision next month is made in favour of the annual election of chairmen and directors of listed company boards.

Tomorrow's Corporate Governance: Bridging the UK engagement gap through Swedish-style nomination committees outlines experiences and practices of Swedish-style investor-led nomination committees, and is supported by activist investor Cevian Capital.
The central recommendation is that listed companies in the UK should invite major shareholders to join board nomination committees.

For pension funds, Tomorrow's Company recommends that they re-examine their contracts with asset managers and specify the level of active engagement in the nomination process that they require. The FRC should promote the annual re-election of boards and chairmen on the basis that boards engage major shareholders in the process - and through the National Association of Pension Funds (NAPF), they should pool their efforts to ensure fund managers are more effective in participating in the board nomination process.

Mark Goyder, Tomorrow's Company founder director, commented: "Following the Walker report and the FRC review, the difficulty now lies in identifying tangible measures that will have a direct impact on a stewardship revival, particularly in the UK economy where shareholdings have become so dispersed.

"The most important learning for the UK from the Swedish experience is that to take a leap forward, we need some formal process in which major shareholders engage with companies and start to work together in a more proactive way than at present."

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