The Capital Markets Authority (CMA) will begin implementation of the Stewardship Code this year, allowing institutional investors to take an active role in the oversight of operations of public companies.
The code will see the major investors such as pension funds, insurance companies, investment trusts and collective investment schemes with stakes in listed companies question management on policies and critique the board’s strategies.
The code is not mandatory as the companies are not direct licensees of CMA but it is expected to promote good governance and sustainability of the businesses.
Companies are run by management teams that report to the board of directors that are dominated by controlling shareholders.
Other passive investors who hold minority stakes typically get a chance to question management and put forward their proposals at annual general meetings.
The code will define how the institutional investors will interact with companies and hold them accountable.
“The adoption of the Stewardship Code for institutional investors is gaining traction, with institutional investors expected to sign up to implement the code in this year,” the CMA said.
The code will apply to the group of shareholders who in most cases hold large stakes in a single stock and their positions stand to be affected in case of closure or bankruptcy of the company.
The principles will include monitoring of investee companies, voting, responsible investment, engagement, conflict of interest provisions and companies’ sustainability.
The engagement is also expected to benefit the retail investors who are many, making it difficult for them to organise and engage meaningfully with the firms they have invested in.
CMA has developed sign-up forms for institutional investors to commit to the application of the code.
The implementation has also led to the signing of memoranda of understanding with several institutions including Fund Managers Association (FMA), Institute of Certified Secretaries (ICS) and the Association of Retirement Benefit Schemes (ARBS).
Other targeted institutional investors include private pension scheme providers.
“Of importance is the appreciation that although issuers may have developed comprehensive board charters and policies, there is a need to enhance the assessment on the extent to which these documents are being implemented,” the authority added.