UK Investor Forum: no room for activists

Author: Danielle Myles | Published: 5 Nov 2014
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The Investor Forum's principles and objectives [click to read]
The new UK Investor Forum will take a targeted and pragmatic approach to collective engagement, with a focus on large companies with a diverse shareholder base, according to its directors. They have also made clear that activists won’t have a seat at the table.

The Forum started to take shape last year under the guise of the Collective Engagement Working Group. But details on how the investor-led organisation will pursue its objectives – namely, the promotion of long-term investment strategies and creation of an effective model for collective action – were not known until the group’s official launch last week.

Its first discussion paper makes clear the group will become involved in select situations in which it can add value.

"We are really trying to be investment pragmatists," the Forum’s executive director Andy Griffiths told IFLR. "We want to connect all the parties in the investment chain much more effectively than they have in the past."

This means the group will draw together all stakeholders – local and foreign investors, and company representatives – to facilitate dialogue and help the participants work towards mutually agreeable corporate strategies.

"Over the last few years there has been a lot of dissatisfaction aired at AGMs, and the issues aren’t later worked through as well as they might be. We want to help create solutions to those problems," said Griffiths, a senior adviser with Corsair Capital.

KEY TAKEAWAYS

  • Last week the UK Investor Forum announced its board, principles, objectives and activities;
  • It builds on the Kay Review and Collective Engagement Working Group, and aims to make the case for long-term investment and create an effective model for collective action in the UK;
  • Activists will not be able to take part, as they do not subscribe to the Forum’s long-term objectives;
  • The Forum will focus on large companies with diverse shareholder bases; these are the companies in which engagement has seen little success
  • It will become involved in a situation at the request of an investor or company; in 2015 it expects to take part in two or three collective engagement situations

Answering the critics

Some City law firm partners believe the initiative’s success depends on the extent long-holding funds use the Forum to engage with the company in which they invest, rather than going to management and the board direct.

But the Forum’s board members realise its services will not be needed by all investors.

"The Forum will be best deployed where there are issues at the very biggest firms with a very diversified shareholder base," said Daniel Godfrey, Forum director and chief executive of the Investment Management Association (IMA). "That is where we can make a difference."

Effective engagement has been a lingering problem for these companies, while it has been easier for mid-size firms with a handful of large investors holding big stakes.

There were early fears that activists would be able to participate in the Forum’s activities, giving them another avenue to further their growing influence in Europe.

But Griffiths said it is unlikely these investors would be able to take part: "We hope to have a wide range of members. But to become a member, you must subscribe to the Forum’s values, principles and long-term objectives."

Targeted activities

The activities of the group, which implements a key recommendation of the 2012 Kay Review of UK Equity Markets, will fall under four so-called forums.

The innovation forum will run events and produce research and educational materials. The other forums will be instigated on a case-by-case basis at the request of a company or investor.

The collective investor forum will facilitate dialogue between different stakeholders to limit the risk of strategic or operational drift among the corporate members. It is the new incarnation of the engagement action groups under the Collective Engagement Working Group.

There had been speculation that this forum would aim to create a single view among all stakeholders. But Griffiths has made clear that isn’t the case: "Consensus is not the goal – that is a very hard thing to achieve."

This forum could prove most useful when, for example, a company hears 20 different objections from its 20 major shareholders. In this situation, executives often continue with their corporate strategy, as the owners have not been able to provide a cohesive alternative strategy.


We will be quite targeted. We won’t be involved in every situation you can imagine


In this situation, the forum will help those individuals work towards understanding each other’s views. "If we can’t create a solution, then we’ll work to reduce the gap between views over time," explained Griffiths.

The third arm is the advisory forum, which provides confidential advice to investors and companies on a one-on-one basis. And the fourth, the event-driven forum, will help protect shareholder rights during complex corporate actions.

The Forum’s functions will be performed by situation-specific engagement groups. However the board expects a limited number will need to be formed, at least in the immediate future.

"In 2015,we will simply be engaged in a couple of the more complex issues where there is investor or company demand for us to be involved," said Griffiths, referring to the collective engagement forum. "We will be quite targeted. We won’t be involved in every situation you can imagine."

Challenges and success

One of the Forum’s biggest challenges, as identified by the board and third parties, is its ability to distinguish itself from other investor initiatives. This includes the IMA (which is seed funding the Forum), Association of British Insurers, and National Association of Pension Funds – all of which are backing the organisation.

But the Forum is intent on not replicating these other efforts. It will not be writing new policies and procedures, will not simply be another entity speaking on behalf of investors, and will involve all stakeholders – including international investors.

"We have set up afresh as we want to appeal to the global shareholder register that now provides capital to UK companies," said Griffiths.

Its independence is another way of earning the industry’s trust and respect. The Forum is a not-for-profit community interest company, to demonstrate it has no conflict of interest.

Godfrey said a big challenge would be satisfying some international investors that collective engagement can be done in a way that doesn’t create legal regulatory risks.


In 2015,we will simply be engaged in a couple of the more complex issues


The UK market abuse and takeover regimes are complex. They are not clearly understood by foreign shareholders, many of whom are wary of falling foul of the rules when speaking with the companies in which they invest. To this end, the Forum has set up a legal panel to evaluate and demonstrate the safest environment for activities to take place.

"We want to make sure investors and companies are very clear on where the risks and safe areas lie in collective engagement. That is a very important part of this work," said Griffiths, adding that the board is grateful for the support received from the legal community.

The industry should not, however, rush to assess the organisation based on its ability to overcome these challenges.

"We want to make sure the Forum isn’t judged to be a success or failure too quickly, especially as it is premised on achieving long-term, rather than short-term objectives," Godfrey said.

While it is difficult to set targets, he said its success might be reflected by its participation in engagements that lead to better long-tem outcomes over time.

"Another [measurement] is whether market participants – companies and investors - feel they are under less pressure to deliver in the short-term and better positioned to deliver long-term outcomes," he added.

The Investor Forum’s website is here and its first discussion paper here.

See also

Why UK activism is here to stay

Europe boards counter rising activism

Corporate governance quarterly: Sotheby’s poison pill