The power of proxy voting
proxy voting is a fundamental component of effective stewardship: an essential part of creating shareholder value
Proxy voting season is currently in full swing in Europe, US and
parts of Asia, with more than one third of the companies held
in our portfolios conducting their annual general meetings
over April and May. We believe proxy voting is a fundamental
component of effective stewardship: an essential part of creating
shareholder value and delivering investment performance for our
clients. As such, this is an important time for us.
So far this season, we have seen a continuation of several themes
that have become increasingly prominent in recent years. Key
issues have included board elections, notably concerns around
over-boarded or long-tenured directors; and remuneration, mostly
around structure, disclosure and alignment.
These issues are important for us for a number of reasons.
Specifically, because we want the companies we are invested
in to demonstrate an alignment with the long-term investment
horizons of our clients. Board leadership, for instance, calls for
clarity and balance in board and executive roles and an integrity of
process to protect the interests of minority investors and promote
success of the company as a whole. In our minds, there should be a
sufficient mix of directors with relevant knowledge, independence,
competence, industry experience and diversity of perspectives to
generate effective challenge, discussion and objective decision-making.
Greater governance clarity
This point came to the fore recently in discussions that we
had with a US energy company. Ahead of its AGM there was a
shareholder proposal to require the company to split the roles
of CEO and chair, and therefore have an independent chair.
Recognising the roles of board leadership and leadership of the
company are distinct, typically this is the kind of proposal that we
would support. However, we understand that the circumstances
under which companies operate vary considerably and as such we
take into account the specific conditions of each company when
assessing how to approach corporate governance.
In this instance, after engagement with the company’s
management team, it became clear that there was a strong case
for the current governance structure. In particular, although
the board had decided to appoint the CEO as chair on the back
of his broader skill set, a robust and powerful counter balance,
in the form of an experienced independent lead director was
also established. This role clearly sets out the responsibilities
and effectively acts as a chair in all but name. Based on the
greater governance clarity we received through dialogue
with the company we were comfortable that the long-term
interests of shareholders were being met and we voted with
Meanwhile, where remuneration is put to a shareholder
vote it should be clearly linked to long-term success and the
desired corporate culture of the organisation. Remuneration
schemes for both executives and non-executives should
ensure that rewards reflect not only the long-term returns to
shareholders and but also the wider value creation for all a
company’s stakeholders. So, ahead of the AGM for a privatemarkets
investment manager we informed the company that
we intended to vote against management on changes to its
This was based on the belief that amendments to awards
to non-executive directors would compromise their
independence from the company/executive management.
This, in our view, would reduce their effectiveness as
shareholders’ representatives and as the overseers of
management’s policies. However, the in-depth discussions
we had with the company on this matter over a number of
conversations outlined how, by ensuring that these rewards
vest over a very long period (5 years) with further restrictions
beyond this, that they were more aligned to encouraging
long-term performance. This, along with the positive changes
already made in its remuneration reporting and commitments
to further improvements in future, were enough to convince
us there was a strong alignment with shareholder value.
Both these examples for us sum up the importance of proxy
voting. Not just the opportunity to influence corporate
governance towards areas of best practice, but also to
meaningfully engage with our investee companies to
enhance shareholders' long-term economic interests.
This information is issued and approved by Martin Currie
Investment Management Limited (‘MCIM’). It does not
constitute investment advice.
Market and currency movements may cause the capital value
of shares, and the income from them, to fall as well as rise and
you may get back less than you invested.
The opinions contained in this document are those of the
named manager(s). They may not necessarily represent the
views of other Martin Currie managers, strategies or funds.
The information provided should not be considered a recommendation to purchase or sell any particular security. It should not
be assumed that any of the security transactions discussed here were or will prove to be profitable.