Through our engagement we encourage companies to ensure that at all times:
- The whole board and management is fully involved in endorsing strategy and in all major strategic decisions (e.g., mergers and acquisitions),
- The board and management satisfy themselves that the company's leadership is effective,
- Appropriate management succession plans are in place,
- The board receives all the information necessary to hold management to account,
- The interests of executives and shareholders are aligned,
- The financial audit is independent and accurate,
- The board provides accurate oversight of environmental and social risks and opportunities,
- The brand and reputation of the company is protected and enhanced.
There may be occasions when, despite discussions with companies, our concerns have not been sufficiently addressed. If a company fails to meet our expectations and we are not satisfied through our regular engagement process with the explanations provided, we will seek to escalate our concerns with the board. In the first instance, this is likely to be through further discussions with the chairman or other senior non-executives.
Such engagements are selective and focused around where we have identified particular issues. We are particularly keen to engage early with companies in order to minimise the loss of shareholder value. Factors for intervention with a company include where our assessment is that shareholder's interests are at risk as a result of a governance failing.
In making decisions as to whether to escalate our engagement we will consider the following:
− The circumstances which have led to our concern,
− The materiality of the potential negative impact,
− Best practice standards, including national guidelines,
− Any explanation provided by the company,
− The significance of the issue for our clients,
− Any pattern of concerns over a period of time,
− The likelihood of success.
If a company consistently fails to meet our expectations, or if a company’s ESG disclosures are insufficient to allow for investors to gain an appropriate understanding of a company’s sustainability-related risks, we may decide to vote against management proposals at the shareholder meeting, including the election of board candidates.
We regard any such action, however, as representing a breakdown in our longer-term relationship with the company. We are only likely to pursue this course when the company's performance has been extremely poor or the board has consistently ignored what we believe to be the legitimate concerns of shareholders.