The power of proxy voting

ESGProxyVotingAbstract

proxy voting is a fundamental component of effective stewardship: an essential part of creating shareholder value

Long-term horizons

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 management.

Meaningful engagement

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 board remuneration.

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.



Important information

This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’). It does not constitute investment advice.
Past performance is not a guide to future returns.
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.