2022 March Proxy Governance Update

In This Edition:

• Joined-up Storytelling – Rachel Crossley, Director Of Stakeholder Communications, Emperor
• “Know your investors and be confident in telling your story”  – Ben Matthews, Deputy Company Secretary, easyJet plc
• Four-pillar Investment Stewardship Programme, Claire Moore, Investment Stewardship Associate Director, Vanguard
• Flying The Flag For Materiality – Iancu Daramus, Responsible Investment Analyst, Fulcrum Asset Management
• The Tone Has Been Set - Bernadette O’Donoghue, Research Project Lead, Glass Lewis
• Pay Is Under Increased Scrutiny - Nicholas Malasinski, Head Of IVIS

Introducing the CGPro Network

There’s no shortage of items jostling for space on the corporate governance agenda this year. Diversity and climate change remain big issues for investors and stakeholders, while the gathering economic storm is intensifying scrutiny on remuneration. Speakers at this month’s landmark gathering of the CGPro Network offered their expertise on what to look out for as the AGM season starts in earnest.

“What’s the biggest topic for issuers to consider as we approach the AGM season?” asked Anne-Marie Clarke, Chair of the Corporate Governance Professionals Network (CGPro Network). “Is it gender and ethnic diversity? Is it climate-related practices? Or is it remuneration issues?” The audience, representing a diverse range of roles and organisations, was eager to answer the question via a polling app. The overwhelming answer? All of the above.

Anne-Marie, who is also Head of Corporate Governance at Boudicca from EQ, was opening the network’s first online gathering since its rebranding from the Women’s Company Secretary Circle (WoCoS). The new name was designed to reflect the diversity and range of corporate governance professionals, all currently faced with navigating the extraordinarily choppy waters of UK plc.

Joined-up Storytelling 

Rachel Crossley, Director Of Stakeholder Communications, Emperor

The first of the event’s two keynote speakers was Rachel Crossley, Director of Stakeholder Communications at Emperor. She embraced the theme of change by emphasising the increasing expectations of stakeholders around climate change, ways of working, mental health, engagement and wellbeing, and diversity and inclusion. Add to this the growing threat of international war, supply chain shortages, adapting to Brexit, the energy crisis and soaring food prices, and there is much to consider in terms of investor and stakeholder communications.

“Stakeholders want companies to demonstrate a positive impact on the world around them,” said Rachel. “They're increasingly asking questions and holding businesses accountable for their actions around sustainability and the environment. We've seen a step change in climate change reporting over the past year as the Taskforce for Climate-related Financial Disclosures (TCFDs) comes into force for premium-listed companies, and we expect that to continue into the year ahead.”

While highlighting best-practice reporting from Anglian Water and SSE, Rachel believes there is much more to be done. “There’s been a lot of disclosure around Net Zero targets but they tend to be long term,” she said. “Investors want to see action and I think more should be done to communicate short-term objectives and the progress that organisations are making year on year. And it’s so important to be authentic. Talk transparently about the positives and negatives of the year, and what you’re doing to address them. Provide metrics and targets, and be consistent.”

Doubling back to the initial poll question, Rachel also stressed that embracing diversity is now non-negotiable. “Modern employees want to work for organisations that promote diversity and inclusion,” she said. “A stat from BCG found that 51% of job seekers wouldn’t consider an offer from a company that doesn’t share their beliefs in this area. Given the growing skills gaps faced by business, this is a big issue for organisations and critical to their long-term success. It also ties in very much with engaging your employees. An annual engagement survey really isn't enough anymore – it has to be an ongoing conversation.”

From a communications perspective. Rachel’s over-arching message is that the answer to these challenges lies in “joined-up, multi-channel storytelling”. The pandemic has clearly encouraged a switch to more digital comms and a growing emphasis on user experience and accessibility, and Rachel encourages clients to think about how they use case studies, videos and interactive features to bring their reporting to life. And in terms of printed annual reports, we are seeing a trend towards reports produced in a landscape format, as Rachel demonstrated with an example from Greggs. This format works better for users who are viewing content online.

All in all, the reporting landscape continues to evolve and companies need to ensure they are communicating a joined up, consistent and holistic narrative that meets the needs of a diverse range of stakeholders.​

“Know your investors and be confident in telling your story” 

Ben Matthews, Deputy Company Secretary, easyJet plc

Rachel was followed by a second keynote speaker who is all too familiar with the winds of change that have buffeted investor relations in recent times and, like Rachel, he believes much of the solution lies in authentic and consistent storytelling.

As Deputy Company Secretary of easyJet plc, Ben Matthews is pleased to see passengers returning to airports again but, as an aviation business, there are clearly challenges in communicating to investors against the backdrop of climate change.  “At easyJet we want to lead the decarbonisation of aviation, and ultimately achieve carbon-free flying across Europe. But the key will be the development of new technology, and we are working hard with partners on that,” he said.

Ben has also been no stranger to shareholder meetings in the past two years. easyJet held an AGM in February 2020, just before the pandemic hit, and then a Requisitioned General Meeting in May 2020. Approval for a share placing soon followed and then Brexit led to the next AGM being brought forward to December 2020. Then followed a break before returning to the normal timeframe in February 2022 with another hybrid AGM.

Know your investor

As well as the practical challenges of holding online/hybrid AGMs during the lockdown, the experience has left Ben with a few thoughts on the importance of knowing your investors. “What does your share register look like? Not only in terms of the retail and institutional split but who doesn't vote on your share register? And then of the shareholders that do vote, what's their voting history and what are their views? Are they purely interested in ESG? Are they interested in a dividend return?

“One thing that is clear is that you can't please all of the people all of the time. We can explain why we’ve taken a certain approach, and that we've got the right governance in place to make sure that we've made the right decision. But some investors will simply take a different view, and might not want to engage on that at all. We are seeing more investors develop their own voting policies, which I think is encouraging from a stewardship perspective, but it does make it harder for companies to navigate. The days of achieving a high proportion of votes in favour may shift considerably.

“It all comes back to what Rachel was saying about telling your story. Make sure that you’re communicating what you're doing and why you're doing it, and engage with both retail and institutional investors throughout the year – not just through the AGM. It’s also really important to know your hotspots, the areas where your shareholders will have divergent views. How can you communicate them better?”

Four-pillar Investment Stewardship Programme

Claire Moore, Investment Stewardship Associate Director, Vanguard

Claire explained the philosophy of Vanguard in protecting its 30 million global investors. “We believe that material ESG risks can affect long-term value creation in the companies in which our funds invest and, if left unchecked, they may undermine that value.”

Vanguard manages this risk through a four-pillar investment stewardship programme. “Our premise is that good governance starts with a good board, and with a focus on long-term value and less on the next quarterly results,” said Claire. “We’re looking for independence, diversity of thought experience and background, and across other dimensions such as gender, ethnicity and point of view. Research shows that diverse groups will reach better judgments and decisions.”

The second pillar is the board’s oversight of a company's long-term strategy and any relevant material risks, including environmental and social. “We expect boards not just to identify and help a company manage those risks, but also to disclose them to help us as a shareholder understand what risks exist, and what the company is doing to address them.”

The third pillar is an alignment between executive pay and company performance, and the fourth is that companies have appropriate shareholder rights in place so that they can express themselves directly to the board.

“We share our views on these aspects of stewardship with companies to allow them time to respond,” said Claire. “But if progress isn't made within a reasonable timeframe, we may consider using our vote to escalate an issue and hold companies accountable.”

Flying The Flag For Materiality

Iancu Daramus, Responsible Investment Analyst, Fulcrum Asset Management

As an investment analyst at Fulcrum, Iancu Daramus flies the flag strongly for materiality. “I tend to spend most of my time thinking about climate change and sustainability because they are probably the most measurable areas around responsible investment,” he said. “But ESG investing is growing in terms of fresh environmental and social dimensions, many of which are important and should be welcomed. At the same time, I think it's important to bear in mind that broadening the range of topics should not mean turning ESG investing into a wish list of everything that can be improved in the corporate arena. And I do think there is a slight danger there. The important issue to think about is materiality – which topics make a difference and which are more peripheral? We and our partners are developing the tools and analytics – such as the free-to-use ESGforInvestors.com platform, to help tackle these questions.

“The very fact that hedge funds like Fulcrum are strengthening their stewardship capabilities alludes to the changing agenda and nature of AGMs,” Iancu added. “Over the last AGM season, we supported about 70% of shareholder proposals on environmental and social issues and I think there's an appetite to do a lot more and to collaborate with other investors on raising standards in the market.”

The Tone Has Been Set

Bernadette O’Donoghue, Research Project Lead, Glass Lewis

Meanwhile, at Glass Lewis, Bernadette O’Donoghue is part of the team providing analysis and voting recommendations on around 30,000 shareholder meetings across 100 global markets each year. “We think board composition, particularly surrounding diversity and inclusion will be the focus of agendas for many investors and issuers,” she said. “And I’m sure remuneration will continue to be at the forefront – one remuneration report has already been defeated this year and another handful has received significant ‘against’ votes. That’s setting the tone for the season early on and remuneration committees will clearly be trying to balance stakeholder experience with recruitment and retention concerns.”

Pay Is Under Increased Scrutiny

Nicholas Malasinski, Head of IVIS

As Head of IVIS (Institutional Voting Information Service), Nicholas Malasinski provides subscribers with corporate governance research and advice, and familiar themes continue to emerge. “We pick up trends on various corporate governance issues, mostly from the AGM season but also through ongoing engagement,” he said. “It’s probably no surprise to reveal that most of them relate to remuneration. Last year, we had roughly 170 engagements purely on that alone. Pay has always been a big focus for investors, media and politicians and, if anything, it’s even more under the spotlight now. This year it will be reviewed in the context of stakeholder experience, which was impacted by the COVID-19 pandemic as well as the cost of living crisis, with the latter likely to be exacerbated by the war in Ukraine. Companies will have to demonstrate how they took these into account when deciding on pay outcomes. For instance, if a company received government grants related to COVID-19 or put staff on furlough, should they be paying bonuses to directors?”

Until next time

As we all focus on our respective roles supporting corporate governance and wider ESG, we look forward to continuing the discussion at future events, perhaps next time reflecting on what we predicted and what has unfolded during 2022. The Boudicca from EQ Corporate Governance team will certainly be helping us keep abreast of developments – watch this space and look out for our future Proxy Governance Updates, and the next date for your diary for a future event. In the meantime, please do feel free to contact us and one another so that we can build a supportive network.

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