Corporate Governance And Local Authority Investment Vehicles

The landscape

Local authority pension funds have an honourable history of seeking to act as positive stewards of their investments in publicly traded companies and work closely with the Pension and Investment Research Consultants ('PIRC'), their preferred shareholder voting advisory agency, as active investors, seeking to apply their investments to make our economy more sustainable. Local authorities as public bodies must conduct themselves in a clear, transparent and accountable manner. Furthermore, there is a plethora of best practice statements and standards setting out modes of behaviours in order to identify how company directors may discharge their responsibilities to act, in good faith, in what they consider to be in the best interests of the members of the company as a whole.

Local authority corporate investments

However, local authorities need to enshrine and promote this best practice into privately owned companies in which they invest. What can be done to better reflect the principles of investor stewardship into local authority investments, both in the boardroom and at shareholder level? This article set out five areas each local authority should consider.

Corporate governance developments

Beyond the public sector, there have been significant developments in the sphere of corporate governance throughout the past decade.

The most significant developments in this area are:

the introduction of a codified statement of the general duties of directors in the Companies Act 2006; the regular update by the Financial Reporting Council of the UK Corporate Governance Code (last version September 2012); the Financial Reporting Council's companion volume to the UK Corporate Governance Code, the Stewardship Code; the continuing work on the European Commission Company Law and Corporate Governance Action Plan, including the new proposed Shareholder Rights Directive; the changes to corporate narrative reporting which came into effect on 1 October 2013 under The Companies Act (Strategic Report and Directors' Report) Regulations 2013 (SI 2013/1970); the Quoted Companies Alliance Corporate Governance Code for Small and Mid-Size Quoted Companies 2013 published by the Quoted Companies Alliance on 1 May 2013. Opportunity for local authorities to show leadership

It is notable that standards of corporate governance best practice applied by most companies outside of the public markets significantly lag behind those in the equity capital markets. It is...