Investors expect boards to focus on a “long-term” approach to coping with the economic impact of the Covid-19 crisis, according to guidance from one of the largest groups of asset managers in the UK.
The Investment Association has written an open letter to company chairs providing details of the way investment managers will help to “keep corporate Britain working”. The guidance ranges across executive pay, dividends, engagement, financial reporting and capital.
The guidance says investors expect companies to consider the “suitability and sustainability” of dividend payments in the current environment.
On executive pay, the IA said: “If a company cancels dividend payments or makes significant changes to their workforce’s pay, IA members support boards and remuneration committees that demonstrate how this should be reflected in their approach to executive pay.”
Chris Cummings, chief executive of the IA, said: “We are trusted by millions of pension savers to invest their money wisely and that means taking a long-term view, backing companies that do the right thing, and holding those that don’t to account. That’s why today, the investment management industry is showing its support for British business.
“The measures announced today will help company boards focus on leading their business through the crisis, looking after their employees, suppliers and customers, in the knowledge that their investors expect them to take a long-term approach to running their business. Investment managers want to see the businesses they invest in do well in the months and years ahead.”
Pay and dividends
Executive pay has become a feature of public debate focused on reactions to the pandemic. Health secretary Matt Hancock chose to highlight the pay levels of professional footballers but that soon prompted public demands for business leaders to cut their own pay.
BT’s chief executive Philip Jansen has announced he will donate his salary to charity for at least six months, while paying bonuses to the company’s staff. Andy Hornby of the Restaurant Group has taken a 40% cut in pay. Executives at retail chain Sports Direct will have their pay cut to £40,000.
Dividends have been described by some commentators as the “new lightening rod” for political and public anger with big corporates. Some countries are considering an outright ban, while others have made a suspension of dividend payments a condition of receiving state aid.
Insurers Hiscox, Aviva and Direct announced dividend suspensions this week. The Bank of England has warned against dividends and a raft of banks have responded by cancelling their plans.
Share buybacks have also been cancelled, though the Investment Association makes no mention of them in its guidance.
The IA’s focus was broader than just pay and dividends, however. During engagement it said members would focus on “business-critical issues” to ensure a “long-term sustainable future”, and would seek “open dialogue” with boards.
Investors also welcomed moves to either delay or shift AGMs online under advice from the Chartered Governance Institute.
Elsewhere, the IA said shareholders will look to support companies seeking additional capital.
The Centre for Economics and Business Research recently forecast that the UK economy could contract by as much as 15% as a result of the pandemic.