US tie-up adds muscle to AGM battles

One of America's largest shareholder groups is to lend its muscle power to a campaign to stamp out sloppy corporate governance in the UK.

From January, Institutional Shareholder Services (ISS), which represents more than 950 mainly large US investors, will take a more active role in voting at the annual general meetings of UK companies.

ISS has formed a joint venture with the National Association of Pension Funds (NAPF) called RREV. The NAPF is the UK's largest shareholder group, whose 1,000 members have £650bn of assets under management.

The joint venture will allow members to lodge votes at AGMs electronically. But critically, institutional investors will be offered voting advice based on the NAPF's tough corporate governance policies.

With 60 per cent of ISS clients holding shares in UK companies, harnessing the voting power of the US institutional investors is expected to have a noticeable impact at controversial AGMs.

In particular, it could block the re-election of chairmen recently promoted from the role of chief executive. This practice goes against best corporate governance and is frowned on by the NAPF, although, in the past, American shareholders have been more comfortable with it. Owen Davies, chief executive of RREV, warned: "Expect to see votes from US institutions much more aligned with the local practices in the UK as NAPF policy will be applied."

RREV could become a powerful tool for the NAPF as it turns up the heat on companies, forcing them to reform their boards to meet the new combined code on corporate governance which comes into force in October next year.