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PIRC: UK Stewardship Code Should Extend to M&A

The Pensions and Investment Research Consultants (PIRC) has called for the UK’s Financial Reporting Council (FRC) to review investor stewardship of mergers and acquisitions (M&A) activity, incorporating new guidance on M&A-related disclosures in the next iteration of the Stewardship Code. PIRC’s report, ‘Democratic Deficit: Takeovers, Derivatives and Stewardship’, noted that shareholder voting at company meetings held during a takeover decreased by an average of 25% compared to other company meetings. Further, less than half the shares were voted, even when the meeting was seeking approval to proceed with the takeover, the report said. This “sharply reduced turnout” is a side effect of the large derivative positions built up by funds that trade around takeovers, PIRC said, adding that neither the funds nor their counterparties disclose their policies on voting rights in this area. PIRC has also published other recommendations, including a suggestion that the Investment Association expands its register of ‘significant votes’ to include ‘significant turnout issues’, with any company recording a turnout of under 50% being added to the list. Tom Powdrill, PIRC’s Head of Stewardship, said: “Changes in ownership and control represent one of the most fundamental transformations that companies go through. It ought therefore to be an area of heightened stewardship activity. Instead, we see that turnout typically falls dramatically, leaving a black hole in stewardship. This deserves proper attention from investors and regulators.” The FRC is expected to be replaced by the Auditing, Reporting and Governance Authority (ARGA) next year.

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