The Investor Stewardship Group’s Framework for US Stewardship and Governance comes as very welcome news among the melee of negativity flowing out of the US over the last week.
The collective clout held by the group of 16 US and international institutional investors representing a combined total of just over $17 trillion is very considerable and sends a very strong message to corporate America about how investors expect them to behave.
I’ve heard a lot of fund managers and investors complain in recent weeks about the lack of ESG frameworks in the US, which has made it harder to hold companies to account and get them to engage. In no small part, this has been to blame for the significantly higher levels of executive pay Amercian CEOs still enjoy relative to their global peers.
Data from MSCI shows that for companies included in the MSCI World index, US CEOs' average total compensation far exceeds that of their international rivals.
According to Yo Takatsuki, associate director at BMO Global Asset Management: “The US market has a very different benchmark to start off with regarding what executives can earn. American society as a whole has historically had no barriers to seeing successful people earn huge amounts of money. That has changed hugely in the last 10 years though. There has been public outrage about pay for failure.”
The backlash led to the SEC's adoption of Say-on-Pay and Golden Parachute Compensation rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act, but with Trump now threatening to ‘do a big number’ on Dodd-Frank, things could easily slide backwards.
It is therefore very encouraging to see the ISG Framework introduced, which should establish a basic standard for stewardship principles and corporate governance for US listed companies. The Framework goes into effect at the start of next year to give companies time to adapt to the standards ahead of the 2018 proxy season.
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A quick cuppa with Faith Ward, Chief Responsible Investment and Risk Officer, Environment Agency Pension Fund