March 20, 2019 / 5:29 PM / in a month

Fund managers turn up heat on UK companies over diversity, pensions, audit

LONDON (Reuters) - Britain’s big public companies will face a grilling by asset managers over their track record on diversity, excessive pension payouts to bosses and poor quality audits when they hold annual shareholder meetings over the coming weeks.

A committee of 15 asset managers at the Investment Association has picked the three issues that annoy investors the most to try to increase pressure for change.

It is the first time the IA has specifically set out what changes it wants to see in the annual general meeting season. It also marks a step-up in its campaigning efforts as Britain’s corporate governance and stewardship rules are increasingly tightened by policymakers.

“These are three key things which are very topical at the moment and... we want to see significant change on going forward,” Andrew Ninian, director of stewardship at the IA, said.

“And having a concerted effort... we think that we can get through significant change in this AGM season.”

Among the companies making up the IA’s Corporate Governance and Engagement Committee are Britain’s biggest asset manager Legal & General Investment Management, part of insurer Legal & General, and Schroders.

The IA said if no action is taken ahead of each company’s AGM, it will warn members of any specific concerns through its IVIS voting advisory service, which uses colour codes blue, amber and red to alert members to the seriousness of the issue.

Boardroom diversity remains at the top of many asset managers’ list of concerns and has been increasingly under the spotlight amid efforts to ensure women make up at least a third of boards and leadership teams at FTSE 350 companies by 2020.

The IA is particularly concerned about companies where it considers diversity is treated in a tokenistic way. Last week the IA wrote to the boards of 69 companies - a fifth of the FTSE 350 - which it said were lagging in their diversity efforts.

Bumper pension payouts received by some company bosses are also a pressing issue after changes to the UK’s Corporate Governance Code in 2018 that said they should be aligned with the pension contributions given to a majority of the workforce.

From March 1, the IA said it would issue a ‘red top’ alert on any company that has given new appointees a pension rate higher than that of the majority of the workforce. Existing directors with more than a 25 percent contribution will be amber-topped.

The pressure to curb excessive pensions for bosses has already started to show results. Britain’s biggest bank HSBC has announced plans to cut executive pensions from 30 percent to 10 percent after investors raised concerns.

“The main thing for us on the AGM season is fairness,” Mirza Baig, Global Head of Governance at Aviva Investors. “There is a broad sense of awareness about unequal opportunities and pay, and that is feeding through to the AGM ballots.”

The IA said its members would also push for companies’ audit committees to show more effectively how they ensured a quality audit was undertaken. This follows a series of high-profile audit and accounting snafus, most recently Metro Bank.

Additionally, while companies are required to give a view on their viability, too often the view is on a short time frame such as three years which does not factor in longer-term risks.

Reporting by Simon Jessop. Editing by Jane Merriman

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