Caring for our clients’ future by empowering our investments to create long-term sustainable value
“The world of governance continues to evolve rapidly. Our role is to help bring positive change to the companies we invest in, using our influence to ensure that companies integrate environmental, social and governance (ESG) factors into their culture and everyday thinking. We also aim to encourage markets and regulators to create an environment in which good management of ESG factors is valued and supported."Sacha Sadan - Director of Corporate Governance
2015 corporate governance highlights
- Index investors, active owners: In 2015, we voted against at least one resolution at 18% of UK companies, highlighting how index investors are not necessarily passive owners
- International focus: 45% of our meetings were with non-UK companies last year, up from 31% in 2014, reflecting our increasing international focus
- Pay schemes: We have previously made companies aware that we would vote against complex pay schemes. The number of companies having more than one remuneration scheme is down from 43% three years ago to 18% today
- Diversity: We have pushed hard on board diversity and have been complimented by Lord Davies, who conducted the government review into the representation of women on FTSE boards. Five years ago only 12.5% of companies met the target for a quarter of female board members; today that figure is 26.1%. This is a pleasing result, but we are pushing for companies to go further on their talent pipeline
- Sustainability: More than a third of meetings in 2015 covered environmental and/or social topics
Thematic engagement highlights
The cost of food waste in the UK is estimated to be around £12bn. This affects not only corporate profits, but has a wider environmental and social impact. LGIM has engaged with Tesco, Sainsbury’s, WM Morrison and Marks & Spencer to find out what they were doing to tackle food waste and encouraged them to do more.
US board refreshment
Board refreshment and director succession planning are key board tasks and the foundations of a well-functioning board. However, over 100 companies in the S&P 500 have an ‘independent’ board director who has served for 25 years or more. This raises questions regarding the effectiveness and independence of the director. Our voting policy will evolve over time as we engage on this topic with companies, which may lead to this becoming a future voting issue.
The role of the senior independent director
In the wake of high profile governance failures such as Marconi and Equitable Life, the role of the senior independent director (SID) was established following the Higgs Review of the UK Combined Code in 2003. Thirteen years on, the role of the SID is well established and widely accepted. However, it is not always well understood. During 2015, we worked with the Zygos Partnership to develop a guide on expectations and best practice for the SID role.
The right to nominate directors
In the US market, proxy access was the voting issue of 2015. There is growing consensus among shareholders that proxy access is a key driver of enhanced shareholder value, as board accountability has important implications for long-term shareholder value. In 2015, 86 proxy access shareholder proposals came to a vote, 51 of which received majority shareholder support and that support averaged 54%, a clear indication of the importance of this issue. We supported 93% of these proposals. To date, over 100 of the largest companies in the US have introduced proxy access.
As a major investor on behalf of our clients we will hold 500 engagements (meetings, calls, responses to letters) with international companies on ESG issues.
Focus on good practice and engagement.