Further note on fund manager Harris Associates
Over an extended period of time, Harris Associates has developed a strong reputation as a long-term, shareholder-oriented investment firm. This approach is a byproduct of their value investment philosophy that requires every investment to meet the following criteria:
- they are companies that we believe are priced at significant discounts to our estimate of the company’s intrinsic value
- that have a path to grow per share value and
- are run by managers who think and act as owners.
Harris Associates view each stock purchase as if they are buying a piece of the business and, in turn, believe that discussing relevant issues that may affect the company’s long-term performance is part of their due diligence process. They utilize engagement as a way to act in shareholders’ best interests to maximize the expected value of their investments.
The engagement process begins before investment and carries on throughout the investment process. By the time Harris decide to invest in a company, they have already concluded that management and the board of directors are likely to act in shareholders’ best interests. Occasionally, they have important disagreements about the best way to maximize shareholder value. When management does not meet their expectations, they initiate a private, direct conversation. Harris prefer this interaction over public shareholder resolutions. Engagement is carried out under the premise that unsatisfactory or insufficient change by the company will generally be met with divestment.
Harris Associates regularly monitor invested companies and take appropriate action if investment returns are at risk. To ensure that the companies are acting in their shareholders’ best interests, they regularly communicate with management about new initiatives and matters affecting the business. Annually, they have more than a thousand management meetings with C-level executives and board members. Harris's meetings address long-term sustainability issues and managements plans to proactively deal with business risks and opportunities, including potential environmental, social and governance (ESG) issues, when relevant.
Harris measure the success of their engagement based on how well a management team maximizes shareholder value. They urge corporate leaders to provide clear and relevant disclosures of information that may influence their decisions. Harris then voice their concern when they believe disclosures are inadequate.
They also utilize proxy voting authority to address crucial corporate governance issues and encourage corporate actions that enhance shareholder value. Harris believe proxy voting rights are an important part of their investment process. They exercise these responsibilities to help serve their clients’ best interests as company shareholders. Since they invest in companies where they see the goals of management and shareholders aligned, they vote in accordance with management’s recommendations on most issues. This approach confirms that their investment process is working.
To improve the effectiveness of their engagement, they may work with collective bodies and other shareholders. Harris accept the Japan Stewardship Code, which corresponds with their processes and procedures. Harris may periodically send a letter to each of their Japanese holdings that describes their expectations of management and returns and requests that corporate governance be modeled after global best practices. Harris are also a supporter of the principles of good stewardship that are embodied in the U.K. Stewardship Code.
Harris is also a member of the Asian Corporate Governance Association, an organization that leads a constructive dialogue between regulators, institutional investors, listed companies and auditors on key corporate governance issues.
Further notes on fund manager Amundi Asset Management
Amundi who manage our passive bonds and inflation linked portfolios has ongoing engagement led and conducted by their ESG analysts. They
Engagement for influence, led and conducted by their ESG analysts and engagement through voting, led by their voting analysts: pre-meeting dialogue and voting in general meetings.
Ongoing engagement with issuers and companies has a dual purpose:
- Meet companies in order to better understand sectorial ESG challenges and ESG rating
- Encourage companies to adopt best ESG practices and challenge them on ESG risks
The table below shows detailed statistics for the year 2018. (at the time of repoting 2019 details were not available)
- Number of companies interviewed: 259
- Number of questions asked: 1273
- Average number of subjects covered per company: 5
Further notes on ESG Proxy Advisor ACSI
As our ESG research proxy advisor, ACSI has made significant progress in 2019 through engagement with 20 climate change priority companies. Its worth mentioning that there have been material improvements made by 18 of the targeted companies. As company reporting has improved under ACSI’s scrutiny, they have refined their approach and process from simply advocating back in 2017 to companies adopting the TCFD reporting framework, and to developing bespoke objectives for each company. This has allowed ACSI to accelerate the pace of change by pushing companies to best industry practice and standards.
Furthermore in light of the AUSTRAC findings, ACSI in conjunction with its members, organised meetings with executive bank representatives, stressing the need for critical change in leadership to recognise their collective failure to meet their obligations to AUSTRAC and other stakeholders.
27 out of 37 of ACSI's 2019 targeted companies made some improvements after engaging with ACSI mainly over executive remuneration issues.
Lastly, 2019 was also a record year for ‘strike’ outcomes on remuneration votes which was a direct result of protest voting due to the Royal Commission findings namely from misconduct from Australia’s banking sector.