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Breakthrough in corporate governance

As a founding signatory of the Principles for Responsible Investment and the International Corporate Governance Network, we have a proud history of leading thinking around corporate governance.

Fund managers play an integral role in the corporate governance of the businesses they invest in – good governance is therefore a central theme of the asset-management industry. Of course, that was not always the case. 

Corporate governance only began to feature with any regularity in discussions about public companies in the UK after a series of corporate collapses and scandals in the late 1980s 1. In turn, these scandals prompted numerous bodies, including the Financial Reporting Council, the UK Government and the London Stock Exchange, to commission a slew of reports that recommended changes to corporate-governance practices. The period that followed transformed corporate culture in the UK – and we played an important role in this shift too.

Our goal is to help people invest better, retire better and create a better society for all. We have been doing this since 1983, when our first Chief Executive Ralph Quartano rebuked the Marks & Spencer Board for unfair practices.

Alastair Ross Goobey, in his capacity as our Chief Executive from 1993-2001, was instrumental in improving the culture of corporate governance in the City of London. Cognisant of our fiduciary duty – putting the interest of our clients and their ultimate beneficiaries front and centre of all that we do – and our significant holdings in a large number of British quoted companies, Ross Goobey pursued greater corporate accountability and transparency. In 1993, he pressed for shorter CEO contracts, writing to the chairmen of the 100 biggest UK companies and urging them to scrap long-term rolling contracts for directors. He also called for separating the roles of CEO and chairman.

Companies began to listen, and Ross Goobey’s ideas were later adopted and developed by the Cadbury, Greenbury, Hampell and Higgs reports – which were eventually incorporated into the UK Corporate Governance Code, formerly the Combined Code. And in 1996, we established an investment team focusing on the corporate governance of companies.

1992: The Cadbury Report

The Cadbury Committee was set up in May 1991 in response to concerns about the perceived level of low confidence both in financial reporting and the ability of auditors to provide safeguards. After reviewing those aspects of corporate governance relating to financial reporting and accountability, the committee, chaired by Sir Adrian Cadbury, published the report titled Financial Aspects of Corporate Governance in December 1992.

According to the report, corporate governance can be defined as the way in which companies are directed and controlled. The board of directors are ultimately responsible for the governance of their companies, but shareholders play an integral role by appointing the directors and auditors. That way, shareholders can be satisfied that there is an appropriate governance structure in place. Other responsibilities of the board include setting the company’s strategic aims, providing the leadership to implement them, as well as reporting to shareholders on their stewardship. What’s more, the actions of the board are subject to laws, regulations and the shareholders at the annual general meeting.

It also contained a number of recommendations to raise standards in corporate governance, which were enshrined in a Code of Best Practice – and this code would later form the current UK Combined Code on Corporate Governance.

1995: The Greenbury Report

This report was a by-product of a committee established by the UK Confederation of British Industry on corporate governance. It focused on directors’ remuneration, and responded to public and shareholder concerns about the pay and other remuneration of company directors in the UK.

1998: The Hampel Report

The Hampel Committee was established in November 1995 to review the implementation of the Cadbury and Greenbury reports. It formed the basis of the Combined Code and covered the following topics: the role of directors; directors’ remuneration; the role of shareholders; and accountability and audit. The Hampel Report was published in January 1998.


2003: The Higgs Review

The Higgs Review assessed the role and effectiveness of non-executive directors in the UK. The report titled Independent Review of Non-Executive Directors, which was published in January 2003, made recommendations to improve and strengthen the Combined Code.

The Financial Reporting Council (FRC) published the guidance document Good practice suggestions from the Higgs report in June 2006. This was subsequently replaced by the FRC Guidance on Board Effectiveness in 2011.

2012: The UK Corporate Governance Code

The UK Corporate Governance Code, formerly the Combined Code, established principles of good corporate governance – in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders – aimed at companies listed on the London Stock Exchange. It is applied on a “comply or explain” approach – that is, companies must confirm that they have complied with the Code’s provisions in their annual report and accounts or explain why they have not.

2019: Proposed revision to the UK Stewardship Code

Earlier this year, the FRC published a consultation on the draft 2019 UK Stewardship Code. The new code sets substantially higher expectations for investor stewardship policy and practice; it focuses on how effective stewardship delivers value for beneficiaries, the economy and society. Here is an extract of our response to the FRC’s proposed revisions to the code:

“We would like to again express our strong support for an updated and strengthened Stewardship Code in the UK. We believe this is a timely and necessary intervention to continue to raise awareness and performance on stewardship. We welcome the emphasis placed on the alignment of organisational purpose and stewardship. We also welcome the extension of the Code to global assets and asset classes beyond equity, as in our experience effective stewardship can be conducted in other classes, public and private.”

In a report published in February 2019 on the UK’s corporate governance principles, our stewardship service Hermes EOS said it too supported the UK Stewardship Code, stating:

While the Stewardship Code makes clear that stewardship does not entail interfering in the day-to-day management of a business, it requires investors to take an active interest in the oversight of companies and to intervene if necessary. To be effective, we believe stewardship must be seen by companies and investors as an ongoing process. Engagement should ensure a constructive relationship, rather than a procedure to be followed. It should involve debate between directors, management and investors on strategy, risk management and other key issues affecting the long-term health of the company, including how a company’s specific governance arrangements meet its needs.”

Over the last three decades, progress has been made in improving UK corporate governance. But it continues to evolve – as evidenced from the latest iteration of the UK Corporate Governance Code – and it will continue to do so to ensure that governance structures are supporting long-term sustainable business success in the interests of both shareholders and the wider society.

But how has the rest of the world fared during this time?

Regulatory frameworks have progressed immensely on an international scale: nearly all OECD jurisdictions now have national codes or principles, with 84% following a ‘comply or explain’ framework2. What’s more, between 2015 and 2017, 19 jurisdictions revised or issued new corporate governance codes3. Here are some examples of regulatory frameworks that have been implemented across the world:

In addition, an increasing number of stewardship codes are being adopted around the world, offering guidance on investor engagement and transparency about how investors should exercise their ownership and governance responsibilities. Indeed, the UK became the first country to adopt a stewardship code in 2010 following a review of corporate governance in UK banks in the wake of the global financial crisis.

A number of countries have adopted stewardship codes in recent years


Australian Principles of Internal Governance and Asset Stewardship July 2017


The Association of Capital Markets Investors (AMEC) Stewardship Code October 2016


Principles for Governance Monitoring, Voting and Shareholder Engagement, Canadian Coalition for Good Governance December 2010


Danish Stewardship Code November 2016

European Union

Revised Shareholders Rights Directive April 2017

Hong Kong

Principles of Responsible Ownership May 2016

International Corporate Governance Network

ICGN Global Stewardship Principles September 2016


The Insurance Regulatory and Development Authority of India (IRDAI) decision to implement a stewardship code for insurers March 2017


Stewardship Principles for the Exercise of Administrative and Voting Rights in Listed Companies Updated October 2016


Principles for Responsible Institutional Investors Updated May 2017


The CityUK and Astana International Financial Center Responsible Shareholder Engagement – A Kazakh Stewardship Code March 2017


Stewardship Code for Institutional Investors June 2017


Malaysian Code for Institutional Investors May 2014


Dutch Stewardship Code June 2018


Stewardship Principles for Responsible Investors, Stewardship Asia Centre November 2016

South Africa

Code for Responsible Investing in South Africa December 2011

South Korea

Korean Corporate Governance Service (KCGS) Stewardship Code March 2017


Guidelines for institutional investors governing the exercising of participation rights in public limited companies January 2013


Stewardship Principles for Institutional Investors June 2016


Thai Securities and Exchange Commission (SEC) Investment Governance Code February 2017

United Kingdom

The UK Stewardship Code Updated September 2012 A Stewardship Code for Institutional Investors January 2010

United States

Investor Stewardship Group (ISG) Framework for Institutional Investors January 2017

On 30 January 2019, we welcomed the publication of the Financial Reporting Council’s proposed revision to the UK Stewardship Code, given our constructive and sustained advocacy efforts to strengthen it. The revised code:

  • Comprehensively articulates that stewardship needs to be at the heart of each signatory’s business purpose
  • Requires alignment of an investment firm’s governance and remuneration structures to the delivery of ESG as well as financial outcomes
  • Applies to all asset classes, globally
  • Adopts a firm- and fund-level approach and focuses on the effectiveness of stewardship
  • Adds an easy-to-understand binary signatory and non-signatory status
  • Requires a voluntary sign-up

A strong culture of corporate governance

We have a proud history of leading thinking around corporate governance, as discussed above. In recent years, we became a founding signatory of the Principles for Responsible Investment and the International Corporate Governance Network. We published our first Responsible Ownership Principles in 2002, which aim to create a common understanding between company boards, managers and owners. They are derived from our extensive experience as an active and engaged shareholder. We have also established specific corporate governance principles for many countries and regions to address particular local issues.

In addition, our Chief Executive Saker Nusseibeh founded the 300 Club in 2011, an independent group of leading investment professionals from across the globe, in order to respond to an urgent need to raise uncomfortable and fundamental questions about the very foundations of the investment industry and investing.

Pushing the industry forward through best practice

An example of our participation in key initiatives:

  • 300 Club: Founder of in 2011
  • Banking Standards Board: Board member since 2015
  • Better Buildings Partnership: Member since 2008
  • Climate 100+: Member and co-lead for the European utilities sector
  • CDP: Investment member since inception 2015
  • CFA – Future of Finance Advisory Council: Member since 2013
  • Council of Institutional Investors: Member – Corporate Governance Advisory Council
  • Eumedion: Member of the Investment Committee
  • Global Real Estate Sustainability Benchmark: Member of the Real Estate Advisory Board since 2011
  • International Integrated Reporting Council: Council member since 2011
  • International Corporate Governance Network: Member of the Board Governance Committee and Shareholder Responsibilities Committee
  • Institutional Investors Group on Climate Change: Chair of property working group; member of policy working group
  • Principles for Responsible Investment: Founding signatory in 2006; member of various advisory committees
  • Sustainability Accounting Standards Board: Member of the Investment Advisory Group
  • UK Investor Forum: Member since inception in 2016
  • UK Green Finance Institute: Advisory Board Member
  • UN Environment Programme Finance Initiative: Global Steering Committee member; Chair of UNEP FI Investment Committee; Positive Impact Working Group member
  • UN Global Compact: Member since 2017
  • Willis Tower Watson’s Thinking Ahead Institute: Member since 2015

What’s more, our stewardship service provides a mechanism for like-minded institutional investors to pool their resources and in so doing create a stronger and more effective stewardship voice as documented here.

  1. 1“The UK approach to corporate governance,” published by the Financial Reporting Council in November 2006.
  2. 2“OECD Corporate Governance Factbook 2017,” published by the OECD in 2017.
  3. 3“OECD Corporate Governance Factbook 2017,” published by the OECD in 2017.