Britain reviews investor code of practice with competitiveness lens

© Reuters. FILE PHOTO: A general view of the financial district of London is seen in London, Britain, October 19, 2016. REUTERS/Hannah McKay/File Photo

By Huw Jones

LONDON (Reuters) – Britain’s code of good practice for asset managers will undergo a root-and-branch review to aid economic growth and international competitiveness, its compiler said on Tuesday, in a move that could see pay of top executives bumped up.

The code sets out how asset managers should engage with companies over how they are run to improve long-term returns to investors. It is based on “apply and explain”, meaning asset managers must disclose when they don’t apply any of its principles.

There are currently 273 signatories to the code, many based abroad, and representing 43.3 trillion pounds ($54.9 trillion) of assets under management,

Since the Financial Reporting Council (FRC) wrote the latest version in 2019, it has been given a remit by government to aid growth and competitiveness.

Britain is seeking ways to boost London’s attraction a global financial sector through listing and other reforms as Wall Street attracts European company listings and the UK financial sector is largely locked out of the EU since Brexit.

“It’s clear that now is an opportune moment for a fundamental review process to ensure that the principles of the Code are still driving the right stewardship outcomes for investors while not unduly contributing to reporting burdens,” the FRC said in a statement.

The review will focus on whether the code has led to unintended consequences, such as “short-termism” in targets.

After meeting with industry participants, the FRC will make concrete proposals in the summer for public consultation, with the revised code published in early 2025.

The Capital Markets Industry Taskforce (CMIT), an industry group chaired by London Stock Exchange CEO Julia Hoggett, said in November the code must be “recalibrated” to stop measuring compliance simply by counting the number of letters written to companies, or board resolutions opposed.

Instead, there should be “constructive dialogue” allowing companies to set pay at globally competitive levels to end UK executives being paid less than global peers, which is a “deterrent to listing” in Britain, CMIT said.

The High Pay Centre, a think tank focused on responsible corporate governance, said the review was a sign the regulator would be giving the green light to higher pay awards for CEOs.

“It is wrong to suggest the UK lacks competitiveness in CEO pay, when FTSE CEOs are the best paid in Europe,” it said.

Pressure from the business ministry led the FRC to ditch the bulk of its proposals to beef up its separate corporate governance code for companies last month.

($1 = 0.7886 pounds)

(This story has been corrected to say ‘apply and explain’ instead of ‘comply and explain’ in paragraph 2)