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Veritas Asset Management LLP

PRI reporting framework 2019

You are in Direct - Listed Equity Active Ownership » Engagement

Engagement

LEA 02. Reasoning for interaction on ESG issues

Indicate the method of engagement, giving reasons for the interaction.

Type of engagement

Reason for interaction

Individual / Internal staff engagements
Collaborative engagements
Service provider engagements

02.4. Additional information. [Optional]

We actively engage with our investee companies, where we perceive there to be a potential risk to shareholder value and where we believe action taken by management could avert those risks. Engagement often takes place where there is potential poor deployment of cash (e.g. a company buying an unsuitable business rather than paying dividends), lack of transparency in some part of business (this may relate to incentives or company structure), reputational risk (e.g. data protection in Healthcare IT businesses) or working conditions (e.g. factory standards in clothes outsourcing). The investment team will be responsible for any company engagement, with a portfolio manager and an analyst involved in the dialogue with the company.  Engagement is a fundamental part of the process and can play a significant role in ensuring the sustainability of a business. We believe it is necessary to treat management with respect and will endeavour to work with management in order to find a solution. In order to retain a strong long term relationship we hold our discussions with companies in a confidential manner subject to the engagement summaries provided for client reporting purposes. Discussions can often be ongoing and we will make it clear where there are key thresholds we expect to be met. Occasionally we may vote with management on an issue but set a deadline for change to take place i.e. introduction of more Non-Executive Directors (NED’s) or the introduction of fairer long term incentive plans.


LEA 03. Process for identifying and prioritising engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

03.1. Indicate whether your organisation has a formal process for identifying and prioritising engagements.

Indicate the criteria used to identify and prioritise engagements for each type of engagement.
Type of engagement
Criteria used to identify/prioritise engagements
Individual / Internal engagements

Internal / Individual engagements

Collaborative engagements

Collaborative engagements

03.3. Additional information. [Optional]


LEA 04. Objectives for engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.
Indicate whether you define specific objectives for your organisation’s engagement activities.
Individual / Internal engagements
Collaborative engagements

04.2. Additional information. [Optional]


LEA 05. Process for identifying and prioritising collaborative engagement

Indicate if you monitor and/or review engagement outcomes.
Individual / Internal engagements
Collaborative engagements
Indicate if you do any of the following to monitor and review the progress of engagement activities.
Individual / Internal staff engagements
Collaborative engagements

05.3. Additional information [Optional]

We take a very active approach to poor KPI targets for incentives. We engaged with Oracle to remove a clause that related to market capitalisation triggering incentives.


LEA 06. Role in engagement process

06.1. Indicate whether your organisation has an escalation strategy when engagements are unsuccessful.

06.2. Indicate the escalation strategies used at your organisation following unsuccessful engagements.

06.3. Additional information. [Optional]

If we engage with a company and the engagement is unsuccessful we will either;

a) vote against the company if applicable and inform that will be doing so

b) continue to hold the investment and continue to engage with the company but lower the intrinsic value

c) sell the investment

The approach taken depends on the level of the investment and nature of the engagement. We engaged with Safran when they proposed to buy Zodiac. We felt this was poor deployment of shareholders cash. The purchase eventually went to a shareholders vote and we informed the company we would be voting against them. The company achieved the desired number of votes to proceed with the purchase. Whilst unsuccessful we did manage to ensure the company’s compensation scheme reflected the success or otherwise of transforming the Zodiac business. That is to say that the success of the main aero engine business did not cloud any failure to reach targets set for Zodiac. 

 


LEA 07. Share insights from engagements with internal/external managers

07.1. Indicate whether insights gained from your organisation's engagements are shared with investment decision-makers.

Type of engagement

Insights shared

Individual / Internal staff engagements

Collaborative engagements

07.2. Indicate the practices used to ensure information and insights collected through engagements are shared with investment decision-makers.

07.3. Indicate whether insights gained from your organisation’s engagements are shared with your clients/beneficiaries.

Type of engagement

Insights shared

Individual/Internal staff engagements

Collaborative engagements

07.4. Additional information. [Optional]

We provide a summary of any significant engagement in our quarterly investment reports.


LEA 08. Tracking number of engagements

08.1. Indicate if you track the number of your engagement activities.

Type of engagement
Tracking engagements

Individual / Internal staff engagements

Collaborative engagements

08.2. Additional information. [OPTIONAL]

All engagements which are conducted by the investment team are recorded in an engagement log. These are then identified as either interactions or engagement. Items categorised as engagement must satisfy the following statement "Significant engagement is defined as a specific attempt to influence governance/business practices that have a material impact on long-term sustainable value creation". Consequently, this excludes regular updates with companies that happen in the normal course of an investment (i.e. post-results updates or routine roadshow meetings).


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