The Financial Reporting Council (FRC), UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment, has issued a revised UK Corporate Governance Code
. The changes to the Code are designed to strengthen the focus of companies and investors on the longer term and the sustainability of value creation. One aspect of this refocusing is shareholder engagement. The revised code seeks to ensure better communication between boards and shareholders by improving disclosure and transparency on proxy voting issues.
For example, the revised Code suggests that better information be made available for shareholder meetings:
For each resolution, where a vote has been taken on a show of hands, the company should ensure that the following information is given at the meeting and made available as soon as reasonably practicable on a website which is maintained by or on behalf of the company:
- the number of shares in respect of which proxy appointments have been validly made;
- the number of votes for the resolution;
- the number of votes against the resolution; and
- the number of shares in respect of which the vote was directed to be withheld.
When, in the opinion of the board, a significant proportion of votes have been cast against a resolution at any general meeting, the company should explain
when announcing the results of voting what actions it intends to take to understand the reasons behind the vote result.
This push for greater transparency is an effort to better engage shareholders in corporate governance; and this improved information may be a way to increase shareholder participation in proxy voting. Increasing shareholder participation is thought to result not only in improved corporate governance, but better economic performance as well. In theory, this is because shareholder engagement encourages better governance practices and responsible corporate behavior, which helps reduce investment risk and ensures that shareholder capital is used effectively. Consequently, the revised Code marks out greater shareholder engagement and participation as key ingredients in corporate governance and risk management.