UK investors set up new body to boost governance

* Group to engage with companies "in times of stress"

* Sets up underwriting fees probe; will report by year-end

LONDON, May 17 (Reuters) - Britain's largest institutional investors, stung by accusations they left companies unchecked ahead of the credit crisis, have created a new body to harangue errant company boards.

The Institutional Investor Council (IIC) will be launched under the auspices of the Institutional Shareholders Committee (ISC), which said on Tuesday the IIC would also look into day-to-day issues and government policies affecting the sector.

"When there is a profound disagreement between shareholders and board and it is quite clear we are heading for a 'no' vote, this body will provide a means by which senior people in the funds industry... can find a way forward," said Keith Skeoch, chief executive of Standard Life Investments and acting head of the new body.

"What we are trying to do is when we have a difficult issue to put more power behind the elbow for those responsible for day-to-day engagement," he said, citing remuneration, capital raising, strategy and succession as key issues.

"Sometimes, it's very important for a company to know that the investment community is very joined up and feels strongly about these issues," Skeoch said.

One of the first tasks of the IIC will be to examine the underwriting fees paid to investment banks on rights issues.

This enquiry will be chaired by Douglas Ferrans, chairman of both the Investment Management Association and of Invista Real Estate and a former chairman of Insight Investment.

Ferrans will consult the industry and report by year-end.

The ISC said it is working on formalising a constitution for the new council which will involve the creation of a nominations committee, representative membership and election of a chair.

It said it expects to report on progress by end-August.

In the interim, ISC's consultative committee headed by Skeoch will take charge of delivering the body's objectives, it said.

The ISC is an umbrella group including investment firms and pension funds with assets under management of more than 3 trillion pounds ($4.3 trillion). (Reporting by Raji Menon; Editing by Sharon Lindores) ($1 = 0.6935 pound)