CORPORATE GOVERNANCE AND

ETHICS
Assignment 2- FO 04
U.K. STEWARDSHIP CODE 2012

Arpan Jain
Bhanu Patni
Jatin Panchi
Nikita Rastogi
Shailie Naik
Twinkle Singh

STEWARDSHIP The Word

The position and duties of asteward, a person who

acts as the surrogate of another or others,
especially by managing property, financial affairs,
an estate, etc.

Stewardshipis an ethic that embodies the

responsible
planning
and
management
of
resources. The concepts of stewardship can be
applied
to
the
environment,
economics,
health,property,information, theology, etc.

INTRODUCTION

TheStewardship Codeis a set of principles or guidelines

released in 2010 by theFinancial Reporting Council, directed
at institutional investors who hold voting rights inUnited
Kingdomcompanies. It was revised in 2012.

Its principal aim is to make institutional investors, who

manage other people's money, be active and engage
incorporate governance in the interests of their
beneficiaries (the shareholders).

The purpose of the Code is to improve the quality of

engagement between institutional investors and companies
to help improve long-term returns to shareholders and the
efficient exercise of governance responsibilities.

The Code adopts the same "comply or explain" approach used in

theUK Corporate Governance Code. This means, it does not require
compliance with principles.

But if fund managers and institutional investors do not comply with

any of the principles set out, they must explain why they have not
done so on their websites. The information is also sent to
theFinancial Reporting Council, which links to the information
provided to it.

The Code is applicable to "firms who manage assets on behalf of

institutional shareholders such as pension funds, insurance
companies, investment trusts and other collective investment
vehicles.

The Code also encourages institutional investorsto disclose their own

level of compliance with the code's principles.

Stewardship and the Code

Stewardship aims to promote the long term

success of companies in such a way that the
ultimate providers of capital also prosper.

In publicly listed companies responsibility for

stewardship is shared - primary responsibility lies
with the board which oversees the actions of its
management.

Investors in the company also play an important

role in holding the board to account for the
fulfillment of its responsibilities.

Stewardship and the Code

The UK Stewardship Code sets out the principles of effective

stewardship by investors - code assists institutional investors
better to exercise their stewardship responsibilities, which in
turn gives force to the comply or explain system.

Stewardship provides more than just voting to the investors.

It provides them opportunities which include monitoring and
engaging with companies on matters such as strategy,
performance, risk, capital
structure, and corporate
governance, including culture and remuneration.

Stewardship and the Code

The activities for the Institutional investors include decisionmaking on matters such as allocating assets, awarding
investment mandates, designing investment strategies, and
buying or selling specific securities.

Asset managers, along with the responsibility of managing

investments, are given the position so as to influence
companies long-term performance through stewardship.

Compliance with the Code does not constitute an invitation

to manage the affairs of a company or preclude a decision to
sell a holding, where this is considered in the best interest of
clients or beneficiaries.

THE PRINCIPLES OF THE

CODE
So as to protect and enhance the value that accrues to the
ultimate beneficiary, institutional investors should:
1. publicly disclose their policy on how they will discharge their
stewardship responsibilities.
2. have a robust policy on managing conflicts of interest in
relation to stewardship which
should be publicly disclosed.
3. monitor their investee companies.
4. establish clear guidelines on when and how they will escalate
their stewardship activities.
5. be willing to act collectively with other investors where
appropriate.
6. have a clear policy on voting and disclosure of voting activity.
7. report periodically on their stewardship and voting activities.

APPLICATION OF THE CODE

The Code is directed to institutional investors - asset owners

and asset managers with equity holdings in UK listed
companies.

Institutional investors may choose to outsource to external

service providers some of the activities associated with the
code, however, they cannot delegate their responsibility for
stewardship. They remain responsible for ensuring those
activities are carried out in a manner consistent with their
own approach to stewardship.

The Code also applies, by extension, to service providers,

such as proxy advisors and investment consultants.

APPLICATION OF THE CODE

The FRC expects signatories of the Code to publish on their

website, or if they do not have a website in another
accessible form, a statement that:

describes how the signatory has applied each of the seven

principles of the Code and discloses the specific
information requested in the guidance to the principles; or

if one or more of the principles have not been applied or

the specific information requested in the guidance has not
been disclosed, explains why the signatory has not
complied with those elements of the Code.

APPLICATION OF THE CODE

Disclosures under the Code should improve the

functioning of the market for investment mandates.
Asset owners should be better equipped to
evaluate asset managers, and asset managers
should be better informed, enabling them to tailor
their services to meet asset owners requirements.

The disclosures should, with respect to conflicts of

interest, address the priority given to client
interests in decision-making.

APPLICATION OF THE CODE

The statement of how the Code has been applied

should be aligned with the signatorys role in the
investment chain.

An asset manager should disclose how it delivers

stewardship responsibilities on behalf of its clients.

Overseas investors who follow other national or

international codes that have similar objectives
should not feel the application of the Code
duplicates or confuses their responsibilities.

APPLICATION OF THE CODE

Institutional investors with several types of funds

or products need to make only one statement,
but are encouraged to explain which of their
funds or products are covered by the approach
described in their statements.

The service providers are encouraged to disclose

how they carry out the wishes of their clients
with respect to each principle of the Code that is
relevant to their activities.

APPLICATION OF THE CODE

Signatories are encouraged to review their policy

statements annually, and update them where
necessary to reflect changes in actual practice.

This statement should be easily available on the

signatorys website, or in any other accessible
form, and should indicate when the statement
was last reviewed. It should include contact
details of an individual who can be contacted for
further information.

COMPLY OR EXPLAIN
Like the UK Corporate Governance Code, The Stewardship
Code should be applied on a comply or explain basis:

The Code is not a rigid set of rules. It consists of

principles and guidance. The principles are the core of
the Code and the way in which they are applied should
be the central question for the institutional investor as
it determines how to operate according to the Code.

The guidance recommends how the principle might be

applied.

COMPLY OR EXPLAIN

Those signatories that choose not to comply with

one of the principles, or not to follow the
guidance, should deliver meaningful explanations
that enable the reader to understand their
approach to stewardship.

The FRC recognizes that not all parts of the Code

are relevant to all signatories. In these
circumstances, they should take advantage of the
comply or explain approach and set out why
this is the case.

COMPLY OR EXPLAIN

Whilst clients and beneficiaries have

every right to challenge a signatorys
explanations if they are unconvincing,
they should not evaluate explanations
in a mechanistic way. Departures from
the Code should not be automatically
treated as breaches.

Changes to the Stewardship

Code

Clarification of the respective responsibilities of

asset managers and asset owners for stewardship,
and for stewardship activities that they have
chosen to outsource;
Investors are to explain more clearly how they
manage conflicts of interest, the circumstances in
which they will take part in collective engagement,
and the use they make of proxy voting agencies;
Asset managers are encouraged to have the
processes that support their stewardship activities
independently verified, to provide greater
assurance to their clients.

FRCs focus for upcoming

years

The FRC acknowledges that the

development of a culture of
stewardship may take time
the FRC is concerned that not all
signatories are following through on
their commitment to the Code
The main focus for 2015 and 2016 is to
improve implementation of the Code.

Areas of Focus

developing the evidence base for the

benefits of stewardship;
generating demand from asset owners
for stewardship work by fund
managers;
undertaking greater scrutiny of
adherence to the Code.

Thank You