The Financial Reporting Council (FRC) has published its first UK Stewardship Code for institutional investors, including the monitoring of investee companies, collective engagement and public reporting and reporting to clients.

The publication, which follows that of the updated UK Corporate Governance Code for listed companies, also includes principles on the escalation of activities taken to protect or enhance shareholder value, voting policy and managing conflicts of interest.

The Code aims to improve the quality of corporate governance by promoting better dialogue between shareholders and company boards, and more transparency in the way investors oversee the companies they own.

FRC chairman, Baroness Hogg, said: “We hope this new Code will be a catalyst for better engagement between shareholders and companies and create a strong link between governance and the investment process.

“Disclosures made by institutions under the Code should assist companies to understand the approach and expectations of their major shareholders. They should also assist those issuing mandates to fund managers. Pension funds and other owners may not wish to become directly involved in engagement but they can make a significant contribution by, for example, mandating their fund managers to do so on their behalf.”

The FRC said institutional investors should report publicly on the extent to which they follow the Code, and from the end of September 2010 the FRC will maintain a list of those who have done so on the their website.

David Paterson, NAPF head of corporate governance, added: “The NAPF is supporting of the Code, which marks a material advance on the Institutional Shareholders’ Committee Principles that were first published several years ago.

“Implementation of the Code does present some challenges for pension funds of all sizes. As a first step, funds should re-examine their approach to stewardship, and discuss with their advisers and investment managers how to apply the Code’s provisions to their own particular circumstances.”

Hermes Equity Ownership Services’ (EOS) CEO, Colin Melvin, said this is an important step towards active investor engagement, although it could be strengthened by giving pension funds more voting control.

“One particular area where we would welcome [strengthening] is for fund managers of pooled accounts to allow their clients to vote the shares attributable to them held within those accounts. We regard this as a basic expectation of fund managers which are keen to recognise their role as stewards of other people’s assets – to freely enable them to have control and influence over their own assets.”

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