FINANCE NEWS: Code urges charity votes at AGMs

MATHEW LITTLE

Charities could be expected to vote at company annual general meetings and take a stance on issues such as board composition and directors' pay if the fund management industry adopts a new code of practice for institutional investors.

The Institutional Shareholders Committee (ISC), which comprises the Association of British Insurers, the National Association of Pension Funds, and the Investment Management Association, last week published an industry code which encourages investors to intervene "where necessary" in underperforming companies and publish their policy on corporate activism.

As institutional investors, many charities could be expected to follow suit.

"Whatever is adopted by the pension fund industry is likely to filter down to fund managers for charities," said Charles Mesquita, charities specialist at investment managers Carr Sheppards Crosthwaite.

And he warned of another financial burden for charities. "There will be a cost attached to it. If the fund manager has to vote on every issue, they will have to employ more staff and that will be passed on to charities," he said.

The Government welcomed the publication of the code, which follows the recommendations of the Myners Report on institutional investment.

In a statement the Treasury said it would review the progress of the code after two years and decide whether legislation to enforce it was necessary.

The ISC does not advocate compulsory voting at company AGMs, instead calling for voting "where practicable".

John Hildebrand, a member of an ACEVO committee, chaired by Lord Young, which is drawing up an investment code for charities, has warned charities of how fund managers were likely to respond to the ISC code.

"We, like the ISC, are against mandatory voting and believe that as far as charities are concerned, voting should take into account 'materiality' - where the cost of voting justifies the benefits for smaller charities - and the aims and purposes of the fund," said Hildebrand, who is also head of charities at fund management company Investec Asset Management.

"The recent Young Committee survey drew a distinction between operational charities which might want to act in order to please future donors and grant-making charities."

Hildebrand said that in practice most fund managers would be able to vote on behalf of charities, although organisations would first have to agree a policy on voting with the fund manager.

"We believe the onus to vote should lie with the fund manager, not the charity," he said.

Some charities such as WWF-UK have used their holdings in companies to vote at annual meetings in order to influence their policies on social and environmental issues, but Hildebrand warned that fund managers were likely to concentrate on purely financial matters.

"Where charities see voting as a way of meeting their wide aims, they might want to consider taking more responsibility for voting as the managers are likely to concentrate primarily on financial self-interest," he said.

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