As moderator for yesterday’s IR Society seminar focusing on current trends in Corporate Governance, Richard Davies assembled a superb panel of speakers to address the 40-strong audience.
Beginning with experts from corporate governance trade bodies, Will Pomroy, Policy Lead: Corporate Governance & Stewardship at NAPF, opened the seminar with discussion of Pension Funds and Environmental Social Governance (ESG).
Pension Funds (PFs) outsource management to Investment Managers, but are still very keen to ensure that they carry out stewardship responsibilities as asset owners – by making their own informed voting decisions, for example. NAPF have been facilitating communication between the PFs and their Investment Managers – through Stewardship Accountability forums – to emphasise what is important to them. Perhaps surprisingly, in a recent survey conducted by the NAPF, 90% of PFs agreed that ESG factors have a material effect on investments.
The Investment Association’s (IMA), Director of Corporate Governance & Engagement, Andrew Ninian, revealed that whilst Remuneration has dominated discussions in recent years, issues surrounding Board effectiveness are one of the largest agendas facing the IMA today. He stressed the need for long-term decisions to be made by the right people on a company’s Board and that this is crucial to its investors. Ninian also spoke about the increasing requirement for diversity within Boards and a requirement for a matrix of skills. He described a pressing concern pertaining to the lack of ‘Board-ready’ candidates available to ‘step up’, and suggested companies need to be more willing to expose their senior executives to Board activity and decisions, in order to prepare them for Director roles. He emphasised the importance of the role of the Chairman, referring to the position as the ‘lynchpin’ of the Board and that ultimately, the Chair is responsible for the cohesiveness of the Board.
George Dallas, Policy Director at ICGN (International Corporate Governance Network), an investor-led membership body, spoke about the role of ICGN in fostering partnerships between companies and investors, rather than seeing the relationship as ‘us and them’. The ICGN operates a number of policy committees and is at the forefront of governance thinking: it produces frequent ‘Viewpoint reports’ on topical governance themes
Peter Swabey, Policy & Research Director of ICSA (Institute of Chartered Secretaries & Administrators) offered insight into the role of the Company Secretary and touched on trends within corporate governance. Peter suggested the CoSec role:
- delivers strategic leadership
- adds significant value as a bridge in the boardroom between the executive team and the non-executive team
- facilitates the delivery of organisational objectives
- occasionally referred to as ‘wise friend and counsellor’ of non-execs
According to ICSA, the role of Company Secretary is increasingly outwardly-focused with many CoSecs currently involved in investor engagement and corporate communications. The role has developed beyond the administrative function of old. Peter warned of the conflict of interest in combining the roles of Head of Legal or General Counsel and CoSec, suggesting they should remain separate entities.
Before concluding, Peter referred to the PSC Register (Person of Significant Control), created as part of the Small Business, Enterprise & Employment Bill, due to come into effect in April 2016. All companies must disclose their beneficial owners via the register, defined by BIS as:
- Those with ownership of more than 25% shares
- Those with ownership of more than 25% voting rights
- Ownership of right to appoint or remove a majority of the board of directors
- Right to exercise significant influence or control
Sustainable Investments and ‘Impact Investing’
The following two speakers, Simon Howard, CEO of UKSIF (UK Sustainable Investment & Finance Association) and Tomas Carruthers, CEO of Social Stock Exchange, focused on the potential for investors to drive sustainability through investing into businesses that positively impact the environment and society.
According to Simon Howard, investing in companies with sustainable business practices is imperative from a financial point of view, as well as any sort of ethical one. He explained that an increasing number of investors are concerned by how businesses, especially in the oil and gas sectors, plan to transition to a low carbon economy. He mentioned how the ‘Aiming for A’ coalition saw shareholders successfully campaign for BP to report on its progress in this respect and in relation to climate change, through the submission of a shareholder resolution. Addressing his audience, he suggested that, based on his experience, the longevity of IR teams in comparison to that of individual CEOs, could present an opportunity for investor relations professionals to be the ‘conscience of the company’.
Tomas Carruthers, spoke passionately about his pioneering organisation, the Social Stock Exchange (SSX), as an alternative to the traditional route to capital-raising. The Social Stock Exchange is the world’s first regulated stock exchange with RIE status and seeks to “bridge the gap between the increasing desires of businesses to make a difference, alongside making a profit.” His passion for ‘impact investing’ evident, he described how the SSX offered small cap companies a platform to increase their visibility and attract “capital at scale, via a growing community of global impact investors.”
Currently led by a retail investor base, ‘impact investing’ has enjoyed an explosive growth in the last five years. Research has pointed to Millennials as the driving force within this investment area. Since 2012 there has been a 60% rise in the global growth of market for sustainable investments (*Global Sustainable Investment Review, Global Sustainable Investment Alliance, Feb 2015).
Voting, Governance and Stewardship
This four-strong panel of experts included, Mike O’Sullivan of Glass Lewis & Co, Sarah Wilson of Manifest, Anita Skipper of Aviva Investors and Diandra Soobiah of NEST. Each speaker gave insight into their organisation’s role and the trends they perceive with regard to voting and stewardship, and the integration of corporate governance research within investment firms. Mike O’Sullivan and Sarah Wilson distinguished between their work as proxy advisory agencies. O’Sullivan noted that Australia has proved a leader in best-practice, and that experiences could prove relevant and beneficial for the UK going forward. Sarah Wilson attacked what she perceives as ‘zombie voting’, which in effect dilutes the efforts of shareholders who do make informed decisions. There was agreement across the panel with regard to the challenge shareholders face in responding adequately to the volume of meetings and resolutions proposed. This led to suggestion that perhaps shareholders might proceed by focusing on a reduced number of holdings, where issues can be examined in detail, rather than prioritising quantity over quality.
Anita Skipper, in accordance with Sarah Wilson, highlighted the importance for investors to develop and implement their own voting guidelines in light of the fact that not all shareholders have the same views and solutions. Anita, who is a Corporate Governance advisor to Aviva Investors, commented on the firm’s progress on integrating responsible investment practices within the investment and stewardship process. There is a perception that across the industry there needs to be better communication between fund managers and their corporate governance teams to optimise the sharing and incorporation of research and industry developments.
Diandra Soobiah spoke about the importance of integrating ESG as a risk governance strategy and carrying out stewardship responsibilities for NEST as a defined contribution pension scheme. For NEST, the National Employment Savings Trust, the incorporation of ESG issues reflects the Trust’s long-term horizon, which in turn represents the expectations and concerns of its members. NEST not only engages with investee companies as part of its stewardship strategy but with regulators and standard setters, and, crucially, its fund managers too.
Ethics and Governance
Peter Montagnon, Associate Director of IBE (Institute of Business Ethics) and a member of RD:IR’s Advisory Board, closed the seminar by providing the audience with anecdotal insight into the importance of ethics in business. He emphasised the need for companies to have a business model that reflected their core values and that if the two are not aligned, a company risks entering into very muddy waters. He went on to the say that values and culture must drive a company’s behaviour and that this should come from within a company. Not only should investors demand transparency on ESG progress, but the CEO in particular must provide a beacon of light and an example for employees to follow.
For more information regarding IR Society events please visit their website here.
Authors: Sarah Blackshaw & Alice Essam