Regulation  

Investors told to lobby fund managers over corporate culture

Investors told to lobby fund managers over corporate culture

A report by the Financial Reporting Council has stated investors should put pressure on their fund managers to tackle the issue of corporate culture in the companies they own shares in.

The report, published today (20 July), followed a study aimed at addressing how boards, shareholders and senior executives can shape corporate behaviour to create a culture that will deliver sustainable good performance.

Tackling these issues, the FRC report stated, could help foster investment and promote better corporate governance and its report encouraged investors to do this rather than sell out of their holdings in a company.

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The report stated: “Some shareholders are not convinced that they have the power or the ability to change culture.

“Where they perceive a weak culture they are more aware of the risks to value and may be more likely to sell their shares.

“A number of passive fund managers believe that engaging on culture is an important way of preserving value on behalf of clients.

“However, most asset managers reported to us that their clients rarely put them under pressure to put resources into engaging on corporate culture.

“It may, therefore, be helpful for asset owners to encourage their fund managers to raise the subject of culture with the companies they invest in on their behalf.”

Sir Winfried Bischoff, chairman of the FRC, said boards should give careful thought to how culture is assessed but added there is also a role for investors.

He said: “I ask investors and other stakeholders to engage constructively to build respect and trust, and work with companies to achieve long-term value.

“Investors should consider carefully how their behaviour can affect company behaviour and understand how their motivations drive company incentives.”

The report, which took views from chairmen and chief executives, said boards have a responsibility for culture and must exercise oversight in this area.

It added that shareholders rely on the board to oversee a healthy culture which is compatible with the company’s business model, steers the executive and delivers the strategy.

The report also found there was strong consensus among investors that there is a need for companies to improve reporting on culture and communicate openly about the impact of culture on the business.