Date: November 9, 2016
The Importance of Investor Stewardship
Stewardship is about building and growing sustainable businesses to produce long-term benefits for all stakeholders, and in the process contributing to the community and economy as a whole. It goes beyond short-term considerations and includes the sustainability of a company’s long-term performance.
Stewardship is important for the wider business and investment ecosystem, including investors and investee companies. In today’s context, the investment value-chain linking ultimate asset owners to investee companies is increasingly complex. Many countries are seeing a trend towards fragmented ownership, especially in listed companies, with many shareholders each holding a small proportion of shares. Coupled with increasingly shorter shareholding tenure, the ownership mentality is arguably being eroded and replaced by a prevalent short-term view of investment and portfolio management. Hence, the emphasis on stewardship is relevant and timely.
These Stewardship Principles aim, by articulating the core behaviour and actions associated with investor stewardship, to enable investors to be active and responsible shareholders. They provide a view on the activities and functions that stewards should carry out, and how these should relate to the boards and management of investee companies.
They are not intended to be rigid rules to be enforced or prescriptive measures to be adhered to, nor are they intended to constitute a code. They are stated as broad principles, with suggested ways that these principles could be applied. Articulating and sharing stewardship activities, and the level of commitment to these Stewardship Principles, are matters that are left to each individual investor to adopt, on a wholly voluntary basis.
Adopting these Stewardship Principles ought not to be interpreted as an invitation for investors to manage the affairs of an investee company or to interfere in its operations. It underscores the role of the investors as responsible shareholders who appropriately engage the board and management of investee companies, and other shareholders, so as to ensure the long-term success of the companies.
The Responsible Investors
For the purpose of these Principles, the term “investors” is used in a broad sense to include institutional investors who are asset owners and asset managers.
For investors, stewardship extends beyond attendance and voting at shareholders’ meetings. It may involve responsibilities and activities that include actively monitoring and engaging with investee companies on a range of matters and issues. These may include the mandate for the board, performance and performance measurement, risk management, capital structure and corporate governance. Engagement with investee companies should be proactive and conducted on both a routine basis and during times of concern or crisis.
Asset owners are the providers of capital to investee companies. Asset owners, at various parts of the investment value chain, are in effect stewards of assets entrusted to them by their own clients who are the ultimate owners and beneficiaries. By subscribing to these Stewardship Principles, and encouraging their corresponding asset managers and/or investee companies to exercise sound stewardship, asset owners can enhance the long term economic welfare generated within the investment ecosystem.
Asset managers act as agents on behalf of their clients. Though they are not the owners of the assets, asset managers are in effect stewards who are entrusted with the assets under management. Asset managers, given their mandate to manage investments, are more directly connected to investee companies. They are well-positioned to influence the long-term performance of companies through stewardship. By subscribing to these Stewardship Principles, asset managers can play an instrumental role in fostering effective stewardship between investors and investee companies.
Investors may choose to outsource to external service providers some of the activities associated with stewardship but they remain responsible for activities to be carried out in a manner consistent with their own approach to stewardship. Accordingly, service providers such as proxy advisors and investment consultants are encouraged to subscribe to these Stewardship Principles.
It is understandable that not all the Stewardship Principles are relevant to all market participants in the same way. The value chain is differentiated, and there are different applications for ultimate owners, asset owners, and asset managers, among others. Not all principles or guidance might be carried out to the fullest extent or be applied to the same degree. These Stewardship Principles are most applicable to Singapore-based institutional investors with equity holdings in Singapore-listed companies. These Principles, however, would also apply to other investor groups and to service providers that provide advice on investment and corporate governance to investors, including proxy advisors and investment consultants as indicated above.
A Matter of Principle
Ultimately, the effectiveness of these Stewardship Principles hinges upon their application in the right spirit rather than compliance merely in form. They are not intended to be a “box-ticking” exercise. They are also not intended, even unwittingly, to constitute an administrative burden to those who subscribe to these Principles. These Stewardship Principles are intended to help shape positive corporate behaviour and to benefit all stakeholders in the long term, by encouraging investors to be responsible and active stewards who contribute positively to the welfare of the economy, community and society at large.
The following seven Principles provide useful guidance to responsible investors towards fostering good stewardship in discharging their responsibilities and creating sustainable long-term value for all stakeholders.