Thursday, 5 March 2009

A bit more on UKFI

This is all from the framework doc:
[W]e will operate like any other active, engaged shareholder to protect and create value, operating on a commercial basis and at arm’s length from Government.

In order to ensure we meet this standard we will follow in full the Institutional Shareholders’ Committee’s Statement of Principles. This includes:

Monitoring performance. We will maintain an active and regular dialogue with our investee companies’ boards and senior management. We will seek to satisfy ourselves that the boards are operating effectively, and that the companies’ strategies protect and enhance shareholder value.

Intervening when necessary. Should we have concerns, for instance about strategy, operational performance or acquisitions/disposals, we will intervene with the board.

Voting. We will vote all our shares wherever practicable to do so; we will inform the company in advance of our intentions and rationale; and we will disclose how we have voted.

Evaluating and reporting. We will provide regular updates to our client – the Treasury – on the performance of our investments and the effectiveness of our engagement with investee companies.

Much of our focus will be on formulating and implementing a strategy for selling down our holdings over time in an orderly way, consistent with the Government’s firm view that it has no wish to be a permanent investor in UK financial institutions.
We will also engage robustly with banks’ boards and management, holding both strategy and financial performance to account, and taking a strong interest in getting the incentives structures right on the board and beyond – accounting properly for risk and avoiding inefficient rewards for failure.

We will also need to understand the views of and, where appropriate, consult with other investors.

Although we will engage actively as a shareholder, we will respect the principal responsibility which directors – not shareholders – have for deciding their companies’ strategies. In doing this we expect directors to take account of our views, within the overall context set by the Companies Act that directors have a duty to promote the success of the company for the benefit of its shareholders as a whole, including consideration of the need to act fairly between those shareholders. We will not cut across the fundamental legal duty of boards to manage their companies in the interests of all their shareholders.

And from the appendix:
7. Preservation of Investe Company Independence

7.1 The Company will manage the Investments on a commercial basis and will not intervene in day-to-day management decisions of the Investee Companies (including with respect to individual lending or remuneration decisions).

The Investee Companies will continue to be separate economic units with independent powers of decision and, in particular, will continue to have their own independent boards and management teams, determining their own strategies and commercial policies (including business plans and budgets).

7.2 The nature of the Company’s engagement with the Investee Companies will be proportionate to HM Treasury’s ownership interest:

(A) Wholly-Owned Investee Companies: For these financial institutions, the board of the Investee Company will report to the Company, which will actively engage with the Wholly-Owned Investee Company in a manner similar to that in which a financial sponsor would engage with a wholly-owned portfolio company. The Company will, in addition to the rights attaching to the Investments in these companies, exercise all rights and discretions conferred on HM Treasury under the framework documents which apply to these companies, subject to the provisions of this Framework Document.

(B) Listed Investee Companies: For these financial institutions, the Company will engage actively with the Investee Company in accordance with best institutional shareholder practice. The Company will (subject to the other provisions of this Framework Document) exercise the rights attaching to HM Treasury’s Investments in these companies, including voting rights.

2 comments:

James McRitchie said...

Will they announce their votes in advance, provide reasons for their votes and get listed at proxydemocracy.org?

Tom P said...

Hi Jim

Good questions. I would hope they would at least provide the rationale for their voting decisions, as there won't be that many to cover.