Fund manager laggards to be dropped from governance list

* Financial Reporting Council tiers Stewardship Code

* Tier 3 laggards could be evicted if no improvement

* Comes as government considers new governance rules

By Simon Jessop

LONDON, Nov 14 (Reuters) - Fund managers in Britain will be ranked by how they compare on corporate governance and those who do not stick to the standards set by the country's watchdog will be struck off its list.

With (Other OTC: WWTH - news) growing concern about investor oversight of company boards and the prospect of government intervention, the Financial Reporting Council said on Monday it would tier nearly 300 fund firms which have signed up to its voluntary 'Stewardship Code' according to their adherence to it.

Top firms including BP and Smith & Nephew (LSE: SN.L - news) faced shareholder revolts over pay in 2016, highlighting growing discontent at corporate excess, which the government has said it may address with tighter rules.

This follows the launch in 2010 of the FRC's seven point code which aims to encourage institutional investors to actively engage with top listed British firms to ensure good governance.

The code says asset managers should also have a clear policy on how they vote on company issues at annual general meetings, and provide regular feedback to investors.

FRC Chief Executive Stephen Haddrill said reporting against the Stewardship Code was "not a box-ticking exercise" and signatories should provide a clear description of their approach and explain when they do not meet the guidelines.

"We will be looking for continuous improvement from Code signatories," he added.

REAL TEETH

Under the new rules, any firm in the lowest tier, tier 3 - where "significant" reporting improvements are needed - has six months to improve or face being removed from the list.

"The FRC's decision to remove underperforming signatories of the Code that do not demonstrate improvement within six months is a welcome move with real teeth, and one that we hope will spur action among the lowest ranked fund managers," ShareAction Chief Executive Catherine Howarth said.

"While some do serious work on stewardship, the industry as a whole is falling short of the standard needed to properly protect UK pension savers," Howarth added.

An FRC spokeswoman said the change had not been influenced by political pressure but resulted from concerns about the implementation of the voluntary corporate governance code.

"Overall the quality of reporting against the Code did not give a clear enough picture of the approach to stewardship. To improve reporting against the Code and increase transparency in the market we assessed signatory statements and encouraged them to reaffirm their commitment to stewardship," she said. (Editing by Alexander Smith)