9 Annex C: Professor Kay's Good Practice
Statements
Good Practice Statement for Asset Managers
1. Recognise that they are in a position
of trust managing client money and should act at all times in
the best long-term interests of their clients, informing them
of possible conflicts of interest and avoiding these wherever
possible.
2. Operate within a culture of open dialogue
with their clients - building an agreed understanding of investment
objectives and risks, which is informed by their investment expertise.
3. Provide information to clients, including
information on investment performance, in a way which is clear,
timely, useable and relevant to the long-term creation of value
in the investee companies, and therefore to clients' investment
objectives.
4. Disclose fully all costs that fall on
investors in a way that investors can understand.
5. Ensure that income generated from lending
securities is rebated in full to the fund, with any related costs
disclosed separately.
6. Adhere to the investment strategy agreed
with clients.
7. Prioritise medium to long-term value creation
and absolute returns rather than short-term returns from market
movements when making investment decisions.
8. Build an ongoing relationship of stewardship
with the companies in which they invest to help improve long-term
performance - recognising that engagement goes beyond merely voting.
9. Make investment decisions based on judgments
about long-term company performance, informed by an understanding
of company strategy and a range of information relevant to the
specific company, and avoiding reliance on single measures of
performance.
10. Be prepared to act collectively to improve
the performance of their investee companies.
11. Be paid in line with the interests and
timescales of their clients. Specifically remuneration should
not be related to short-term performance of the investment fund
or the performance of the asset management firm. Instead, a long-term
performance incentive should be provided in the form of an interest
in the fund (directly or via the firm) to be held until the manager
is no longer responsible for that fund).[283]
Good Practice Statement for Asset Holders
1. Recognise that they are in a position
of trust managing client money and should act at all times in
the best long-term interests of their clients, informing them
of possible conflicts of interest and avoiding these wherever
possible.
2. Operate within a culture of open dialogue
with beneficiaries - building an agreed understanding of investment
objectives and risks.
3. Provide information to beneficiaries,
including information on investment performance, in a way which
is clear, timely, useable and relevant to clients' investment
objectives.
4. Be proactive in setting mandates for asset
managers based on open dialogue about agreed investment objectives.
5. Set mandates which focus managers on achieving
absolute returns in line with beneficiaries' long-term investment
objectives, rather than short-term relative performance benchmarks.
6. Recognise that diversification is the
result of diversity of investment styles.
7. Review performance no more frequently
than is necessary, and with reference to long-term absolute performance.
8. Encourage and empower asset managers to
engage with investee companies as a means of improving company
performance to deliver investment returns.[284]
Good Practice Statement for Company Directors
Company Directors should...
1. Understand their duties as directors under
the Companies Act 2006, and in particular acknowledge the relevance
of considering long-term factors, including relevant environmental,
social and governance issues, and the reputation of the company
for high standards of business conduct, in fulfilling their duty
to promote the success of the company.
2. Acknowledge that long-term value creation
in the interests of shareholders is best served by strategies
which focus on investing appropriately to deliver sustainable
performance rather than treating the business as a portfolio of
financial interests.
3. Act to ensure that the intermediation
costs associated with a publicly traded company are kept to a
minimum.
4. Ensure that corporate reporting is focused
on forward looking strategy.
5. Facilitate engagement with shareholders,
and in particular institutional shareholders such as asset managers
and asset holders, based on open and ongoing dialogue about their
long-term concerns and investment objectives.
6. Provide information, in the context of
corporate reporting and ongoing shareholder engagement, which
supports shareholders' understanding of company strategy and likely
long-term creation of value, including by agreeing a range of
performance metrics relevant to the company.
7. Communicate information to shareholders
which aids understanding of the future prospects of the company,
even if this means going beyond (but not against) the strict requirements
of accounting standards, for example on market valuations.
8. Not allow expectations of market reaction
to particular short-term performance metrics to significantly
influence company strategy.
9. Refrain from publishing or highlighting
inappropriate metrics which may give a misleading impression of
anticipated future company performance.
10. Be paid in a way which incentivises sustainable
long-term business performance: long-term performance incentives
should be provided in the form of company shares to be held until
after the executive has retired from the business.[285]
283 Professor Kay, The Kay Review of UK equity markets
and long-term decision making, July 2012, page 53 Back
284
Professor Kay, The Kay Review of UK equity markets and long-term
decision making, July 2012, page 56 Back
285
Professor Kay, The Kay Review of UK equity markets and long-term
decision making, July 2012, page 58 Back
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