The European Fund and Asset Management Association (EFAMA) has integrated stewardship principles into a revised version of its Code of External Governance.

EFAMA said it revisited the code, first published in 2011, to bring the language in line with the revised EU Shareholder Rights Directive (SRD) and current terminology.

A new section was inserted to give more context about how asset managers should carry out their shareholder rights on behalf of their clients. It was also updated and amended to reflect the extended scope of engagement with investee companies, such as environmental and social concerns, compliance, culture and ethics, and performance and capital structure.

EFAMA said the new code was designed to assist asset managers in adopting best practices in stewardship.

“The EFAMA Stewardship Code highlights how, through stewardship, asset managers can encourage best business and management practices in companies on environmental, governance, human rights and social challenges,” the trade body said in a statement today.

Stewardship covered the monitoring of, voting the shares of, and engagement with investee companies, EFAMA said. It was part of an asset manager’s fiduciary duty to protect and enhance clients’ assets, but also encouraged long-term value creation and long-term sustainability.

The code is designed to be a guidance document, especially for asset managers seeking to comply with the revised SRD. This legislation came into effect in 2017 and EU member states have until June 2019 to implement it.

It introduces an obligation for asset managers and asset owners to disclose a shareholder engagement policy and report on its implementation, or explain why they have not complied with these requirements.

EFAMA’s new stewardship code can be found here.

Germany ‘weakest for corporate board accountability’ 

Annual elections should be standard for company directors in Europe, according to State Street Global Advisors (SSGA).

The asset manager carried out a study that found shorter director terms resulted in more accountable boards that were responsive to shareholder interests.

The analysis was based on data from companies in 13 European countries. It found that the majority of them set legal limits on company board terms, but said these terms were often too long.

Election cycles were more frequent in countries that introduced corporate governance codes imposing shorter term lengths, however, as these were adopted and adhered to by the majority of organisations, according to the asset manager.

SSGA’s analysis found German corporates had the weakest board accountability, with directors standing for election only once every five years, in line with Germany’s statutory term limit. Germany was closely followed by France, Spain, the Netherlands and Belgium, where board terms are four years.

The UK, Ireland, Switzerland and the Nordics were found to have the strongest board accountability, with one-year terms for directors.  

Rob Walker, head of asset stewardship for the EMEA region at SSGA, said: “Without an annual director election process, shareholders are limited in their ability to hold directors accountable and improve board quality.

“Furthermore, no matter how dissatisfied shareholders are, in some cases they have to wait several years to hold board members accountable. Changing these rules would provide an effective mechanism to fulfil our stewardship responsibilities and improve the quality of board oversight and company performance in the long term.”

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