Comply or Explain: Good for Institutional Shareowners Too

South Africa’s Business Reports (Draft code requires institutions to disclose voting, 9/2/10) says “a draft copy of the institutional shareholder code for responsible investing was released for discussion yesterday. The code, which requires public disclosure of voting records and policies, is set to have a significant impact on the way in which the country’s R1.5 trillion investment fund industry is managed. The only other country that has an institutional shareholder code is the UK.”

Their current code, King 3 is based on an “apply or explain” approach, which has been criticized as “pointless in an environment in which there is limited shareholder activism.”  The new code aims to generate shareholder activism based on more disclosure to and involvement from the ultimate beneficiaries.

Government Employees Pension Fund chief executive John Oliphant, who chairs the committee that drew up the code, said:

Without disclosure we’re wasting our time, the investment managers will merely say ‘yes, we’re having discussions with our clients about it’; disclosure is key if this code is to be effective.

Under the draft code, institutional investor would publicly disclose through the Internet and elsewhere, at least quarterly, how they have applied the code.

Good to see a code applicable to institutional investors seeking to involve the ultimate beneficiaries but not something as onerous as proposed by Lynn Stout in Fiduciary Duties for Activist Shareholders (with Iman Anabtawi), 60 Stanford Law Review 1255 (2008).