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ITEM PF16
PENSION
FUND COMMITTEE – 29 AUGUST 2003
SOCIALLY
RESPONSIBLE INVESTMENT AND CORPORATE GOVERNANCE ISSUES
Report by
the Head of Finance
Revised
Combined Code of Corporate Governance
- In July 2003 a
revised Combined Code of Corporate Governance was published by the Financial
Reporting Council (FRC), which built on the recommendations of the Higgs
review. The FRC is an independent body that oversees changes to the
code. The original Higgs recommendations were reported to the Pension
Fund Committee in February 2003.
- The final draft
gained strong support from both business and shareholder groups after
several months of debate. A few of the original Higgs proposals received
criticism for being too prescriptive and the final version is viewed
as being more flexible. Annex 1
sets out the key points of the new code.
- Nearly all of
the Higgs 50 recommendations were retained. The only significant proposal
dropped was a recommendation that the chairman of a company should not
also chair its board nomination committee.
- Several other
key proposals were modified or clarified. For example the rule that
a chief executive should not become chairman was made more flexible
with the provision that if in exceptional circumstances a board decided
a chief executive should become a chairman then it should consult with
its major shareholders. Reasons for the decision should also be disclosed
in the next annual report.
- Another key area
of concern was the bolstering of the role of the senior independent
director, or SID as it has now become known. It was feared that this
could weaken the position of the chairman by creating an alternative
power base in the boardroom and that the SID may misrepresent the views
of the board in meetings with shareholders. The final daft answers this
by stressing the SID should attend shareholders’ meetings primarily
to listen to shareholders’ views.
Expansion
of the NAPF Voting Service
- In May 2003 the
National Association of Pension Funds (NAPF) announced plans to radically
expand its voting service on boardroom pay and corporate governance.
- The NAPF, which
represents £600bn of institutional investment, is setting up a new company
– called RREV – that will give corporate governance analysis and voting
recommendations on the FTSE All Share index, rather than just the top
350 companies that it currently covers.
- RREV (Research,
Recommendations and Electronic Voting) is a joint venture between the
NAPF and the US-based shareholder lobbyist company, Institutional Shareholder
Services. Further details of this venture can be obtained from an NAPF
Press Release, which is shown in annex 2.
The Oxfordshire
Pension Fund’s Current Voting Policy
- The Oxfordshire
Pension Fund subscribes to the NAPF voting service and should benefit
from the expanded service. The Fund uses the FTSE All Share Index as
its new benchmark for UK Equities, which means that most of its UK equity
holdings will now be covered by the new service.
- The Oxfordshire
Fund’s current voting arrangements is that its managers have delegated
authority to exercise the voting rights. They are instructed to vote
in accordance with the NAPF Voting Issues Service unless there are exceptional
circumstances, which in the managers’ judgement would not be in the
Fund’s best interests. Where managers take a contrary view to the NAPF
they must obtain permission from officers to vote differently.
RECOMMENDATION
- The Committee
is asked to note the report.
CHRIS GRAY
Head of Finance
Background Papers: Combined Code of Corporate Governance published
by the Financial Reporting Council (FRC). NAPF Press Release 22 May 2003.
Contact Officer:
Tony Wheeler, Pension Fund Investments Manager. Tel (01865) 815287
August 2003
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