The International Corporate Governance Network (ICGN) is concerned by recent announcements in the UK which may be detrimental to corporate governance standards and shareholder protections, thereby undermining the UK’s economic growth and attractiveness as a global financial centre, and with potentially significant implications for pensioners, insurance and retail investors’ savings.

ICGN members include global institutional investors responsible for assets under management of USD $77 trillion, 77% of whom are based outside of the UK. Our concerns are shared by the co-signatories to this letter – investors, and associations who represent institutional investors in their respective jurisdictions around the world.

The UK’s reputation for high quality listing and governance standards and resultant overseas investor confidence is both a competitive advantage and a positive differentiator for the UK market in a global context. According to the census from UK’s Office for National Statistics, the proportion of shares in UK companies listed on the London Stock Exchange (LSE) held by overseas investors increased to a record high of 57.7% of the value of the UK stock market in 2022, up from 53.3% in 2020. For such companies, being listed on the UK premium segment is a powerful signal that the company adopts the highest governance standards and is well-placed to thrive over the long-term. In the quest to grow and attract company listings, market integrity is something that must be preserved, and not diluted.

The UK’s advanced corporate governance standards, under the direction of the Financial Reporting Council (FRC), have inspired regulators worldwide in their own governance reforms and investors have used them as a gold standard when commenting on other markets’ governance and listing requirements, as well as in their direct engagement with investee companies. Robust governance structures, high-quality corporate reporting, and strong investor protections are pre-requisites for a competitive market which safeguards corporate resilience, long-term value creation and ensures economic growth.

Commensurately, the UK’s leadership with the FRC’s Stewardship Code has led to a proliferation of similar codes in over two dozen markets around the world. ICGN’s own Global Stewardship Principles complement this effort by emphasising the importance of investors taking a responsible approach to the allocation and management of capital on behalf of underlying beneficiaries, thereby contributing to long-term corporate value, impacting sustainable economies and social prosperity. Importantly, this includes the expectation that investors will make considered use of their votes and enter into constructive dialogue with companies in respect of long-term corporate performance.

Investors’ ability to act as responsible and effective stewards is reliant on them having strong shareholder rights and protections. We fear that this is in regression in the UK. We note, among others, the Financial Conduct Authority’s (FCA) ambition to introduce “the most far-reaching reforms of the UK’s listing regime in three decades” including proposals to replace the ‘standard’ and ‘premium’ segments with a single listing category. We are particularly concerned by the introduction of a more permissive approach to dual class shares structures – with few shareholder protection safeguards – and the removal of shareholder votes prior to significant transactions and related party transactions. These proposals will expose investors to undue risk, with potentially significant implications for underlying beneficiaries including pensioners, insurance, and retail investors’ savings. At a time when the FCA is encouraging investors to play a greater, and more responsible, stewardship role in promoting the long-term success of companies through monitoring, voting and engagement, the imposition of weaker voting rights will have the opposite effect by inhibiting investor influence.

We understand the challenges of attracting new listing, but these are not unique to the UK; European markets face the same predicament, while leading Asian markets continue to thrive – largely due to a surge in Chinese IPOs. The Japan Exchange Group has also experienced exponential growth in listed companies over recent years, a market which has promulgated corporate governance and investor stewardship reforms as key pillars for capital market competitiveness. We therefore challenge assertions of a need to roll back the UK’s corporate governance standards and restrain effective investor stewardship activities through these regulatory proposals.

Such proposals risk undermining investor confidence to invest in UK assets. As the FCA acknowledges, “a company’s decision on both whether to list and, if so, where to list is driven by a range of factors”. While it is unclear whether the changes proposed to the listing rule would help attract listing in the UK, the proposed reforms are likely to harm the UK’s reputation as a market with robust investor protection, high corporate governance standards, strong reporting regime and a stable policy environment. We encourage the authorities – before taking action – to assess the unintended and long-term consequences of the proposed measures, which may reduce the pool of institutional and retail investors willing to invest in UK-listed companies.

With this letter, investors wish to engage in a constructive dialogue with the UK authorities and key stakeholders on measures to promote growth, high quality stewardship, and excellent corporate governance.

ENDS

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Co Signatories

Allianz Global Investors GmbH, Matt Christensen, Global Head Sustainable & Impact Investing

Accident Compensation Corporation, Mark Cross, Chair, Board Investment Committee

AMEC, Fabio Coelho, Chief Executive Officer

APG Asset Management, Claudia Kruse, Managing Director, Responsible Investment Strategy

Association Française de Gestion (AFG), Valentine Bonnet, Head of Corporate Governance and Compliance

Assogestioni, Fabio Galli, Director General

Australian Council of Superannuation Investors, Louise Davidson, Chief Executive Officer

AustralianSuper, Andrew Gray, Head of ESG & Stewardship

AXA Investment Managers, Gilles Moëc, Head of Research

Baillie Gifford, Sam Rooke, Manager (ESG – Policy, Projects and Regulation)

Boston Common Asset Management, Lauren Compere, Managing Director

British Columbia Investment Management Corporation (BCI), Daniel Garant, Executive Vice President and Global Head, Public Markets

Brunel Pension Partnership, Faith Ward, Chief Responsible Investment Officer

California Public Employees’ Retirement System (CalPERS), Marcie Frost, Chief Executive Officer

California State Teachers Retirement System (CalSTRS), Aeisha Mastagni, Senior Portfolio Manger

Canadian Coalition for Good Governance, Catherine McCall, Chief Executive Officer

Church of England Pensions Board, John Ball, Chief Executive Officer

Columbia Threadneedle Investments, Claudia Wearmouth, Head of Responsible Investment

Connor, Clark & Lunn Investment Management Ltd., Martin Gerber, President and Chief Investment Officer

Council of Institutional Investors (CII), Amy Borrus, Executive Director

Downing LLP, Roger Lewis, Head of Sustainability and Responsible Investment

EOS at Federated Hermes Limited, Bruce Duguid, Head of Stewardship

Etica Funds – Responsible Investments, Aldo Bonati, Stewardship and ESG Networks Manager

Eumedion, Rients Abma, Executive Director

Global Alpha Capital Management Ltd., Qing Ji, Portfolio Manager, Board Director Impax Asset Management, Lisa Beauvilain, Global Head of Sustainability & Stewardship Interfaith Center on Corporate Responsibility, Josh Zinner, Chief Executive Officer Investor Alliance for Human Rights, Anita Dorett, Director

Jupiter Asset Management, Kiran Nandra, Head of Equities

LBP AM, Héléna Charrier, Head of SRI

London Pensions Fund Authority, Robert Branagh, Chief Executive Officer

Merseyside Pension Fund, Peter Wallach, Director

Mint Asset Management, Rachel Tinkler, Head of Responsible Investment

Nest, Diandra Soobiah, Head of Responsible Investment

New Zealand Super Fund, Paula Steed, Chief Executive Officer (acting)

Newton Investment Management Limited, Therese Niklasson, Global Head of Sustainable Investment

NILGOSC – Local Government Pension Scheme (Northern Ireland), David Murphy, Chief Executive

Norges Bank Investment Management, Carine Smith Ihenacho, Chief Governance and Compliance Officer

Northern LGPS, Councillor Gerald Cooney, Chair

Office of the New York City Comptroller, Brad Lander, New York City Comptroller

Pensions and Lifetime Savings Association (PLSA), Nigel Peaple, Director of Policy & Advocacy

People’s Partnership, Leanne Clements, Head of Responsible Investment

Permodalan Nasional Berhad, Ahmad Zulqarnain Che On, President & Group Chief Executive

PGGM, Gerard Fehrenbach, Responsible Investment

Principal Global Investors, LLC, Juliet Cohn, Portfolio Manager

Principles for Responsible Investment (PRI), David Atkin, Chief Executive Officer Railpen, Michael Marshall, Director of Investment Risk and Sustainable Ownership Robeco, Carola van Lamoen, Head of Sustainable Investing

Sarasin & Partners, Julia Shatikova, Ownership Lead

Scottish Widows, Vicky Grinnell-Wright, Head ESG and Interim Head of Responsible Investment

TD Global Investment Solutions (TDGIS), Priti Shokeen, Managing Director, Head of ESG Research and Engagement, TD Asset Management

UAW Retiree Medical Benefits Trust, Hershel Harper, Chief Investment Officer

University Pension Plan, Aaron Bennett, Chief Investment Officer

USS, Sandra Carlisle, Head of Responsible Investment

Walter Scott, Jane Henderson, Managing Director

West Yorkshire Pension Fund, Euan Miller, Managing Director

Woodsford, Steven Friel, Chief Executive Officer