The Foundation for Governance Research and Education is an independent charitable foundation focused on addressing the crucial need for good governance.

What is the Foundation's purpose?

• The Foundation's core purpose is the development and promotion of the highest standards of effective and ethical governance in the UK and globally - for companies, financial institutions, public bodies and charities.

How is the purpose achieved?

• The core purpose is achieved through conducting relevant applied interdisciplinary research, creating a body of case studies, and through education, all of which is aimed at being of practical value.

• The Foundation makes its research widely available, holds seminars and discussion meetings, as well as supporting governance research and education in universities and business schools.

What are the aims and benefits of the Foundation's work?

• The Foundation's work is aimed at influencing public policy and regulation relevant to governance.

• The work with companies aims at linking effective governance to economic performance and sustainable investment.

• The Foundation's work is for the benefit of members and potential members of governing boards, investors and, ultimately, for the benefit of economies and society overall.

Foundation Update

The Foundation has just released Engagement Publication No.1 on “Engagement between boards of FTSE-small cap and FTSE-250 companies and institutional shareholders”, following up on its previous research on the governance of small and mid-cap companies. This issue is critical to boards of these companies and their investors.

The Executive Summary is included below:

This Publication deals with engagement between FTSE-small cap and FTSE-250 company boards and institutional shareholders, as distinct from disclosure in a company's annual report for analysis and evaluation by shareholders and/or their agents. Whilst both are communication, engagement requires contact and dialogue between the two parties. High quality disclosure (reporting) on the part of companies and effective engagement between companies and their institutional shareholders are essential to the sustainability of the ‘comply or explain' basis for the Combined Code.

Engagement, however, can also have a wider purpose, namely the enhancement of shareholder value. This is referred to as active engagement.

The Publication is divided into two Sections. Section 1 focuses on the Key Issues and Practical Recommendations on engagement. These are based on research conducted through meetings with senior and experienced practitioners in the business, institutional shareholder and corporate adviser/broking communities, supplemented by other work. This is presented in Section 2.

The key issues are identified under a series of questions, namely:

• Where does responsibility for initiating engagement lie?
• Should engagement be with the fund manager or governance specialist?
• Where does responsibility for identifying governance issues requiring engagement lie?
• Under what circumstances does active engagement apply?
• Are the incentives for fund managers to actively engage sufficient?
• Are there gains for the fund manager from less active forms of engagement?
• How do small cap portfolio fund managers cope with the large number of investee companies?
• How important is the involvement of chairmen?
• Do company advisers and brokers have a role in engagement?
• What is there to learn from the private equity and hedge fund models?

Thirteen practical Recommendations on engagement are proposed for serious consideration. To that end, further work to progress some of the Recommendations, as well as relevant and associated projects to be initiated, are outlined and included as a final Recommendation.

The Foundation's purpose is to encourage better engagement between the boards of FTSE-small cap and FTSE-250 companies and institutional shareholders by leading the debate on the Recommendations and their implementation - supported by continuing research, publications and forums for discussion.

Copies of the Publication can be obtained by emailing - drjohnmellor@foundationgre.com .

A company limited by guarantee No. 4396150 and Registered Charity No. 1124053 ( England and Wales )