Sound Shore’s experience has been that high standards of corporate responsibility reflect good business sense and are directly related to long term investment outperformance. Our fundamental company research includes active engagement with management. Before owning a stock, we generally meet with management directly. Additionally, we conduct cross-checks with suppliers, competitors, clients, and other relevant primary sources. We have approximately 600 management meetings annually.
Criteria we evaluate to assess risk include:
- Operating performance
- Return on invested capital
- Free cash flow and shareholder yield (dividends, share repurchase)
- Capital expenditure budgeting and allocation discipline
- ESG assessments and initiatives
- Compensation process
- Director accountability
- Focus on total shareholder return versus appropriate bench marks
- Non-core activities and conflicts
- Other relevant factors
As long-term investors of our clients’ capital, we view active ownership as our fiduciary responsibility. Our company-specific due diligence process includes financial statement analysis, focusing on risks and liabilities, including ESG considerations. Sound Shore discusses material items with management, providing remediation input. Our target valuations for stocks will include estimate for these factors if relevant. We also utilize external sources such as Bloomberg ESG data.