Critical mass
A “critical mass of investor stewards”, which have the resources to constructively engage companies and hold boards accountable, is vital, the report states.
Most companies define this as between 25% and 35% of their share registers and say they could have regular dialogues with between 10 and 20 investors. Companies should proactively seek these investors to form a “core” group to discuss long-term, strategy, risk and corporate governance, and elicit feedback on their performance, the report says. Ongoing meetings, particularly outside the AGM season, could mitigate risks and prevent disputes as investors seeking to defuse a crisis often arrive too late to enter a trusting dialogue, the group says.
“Honest, nuanced, constructive and, as necessary, challenging feedback is best for all parties,” reports the Institute of Chartered Securities and Administrators (ICSA) in guidance commissioned by the working group.
“It is easier to discuss challenging issues with an investor, or a company – particularly if such a discussion needs to be held urgently – if a relationship has already been established,” states the document, which was published in March.
Meetings should venture beyond the hot-button topic of remuneration, according to the guidance. “Once a year, a company and its owners should focus on the company’s approach to creating value, and protecting that value, looking at issues such as strategy, performance, succession, board effectiveness, culture, risk and reputation,” ICSA states.
“Individual issues, such as remuneration, should be placed in that context rather than dominating the wider strategy discussion.”
Companies and investors should seek engagement on contentious matters, such as pay and director nominations, that may flare up in the voting season.
“With remuneration, companies want to engage well in advance of AGMs to gauge investors’ opinions,” Curtiss of Railpen says. “No company wants their remuneration report to be voted down.”
Publicity generated by AGMs usually overshadows this important work behind the scenes, which usually amounts to a much more productive outcome between the parties involved than if a story is splashed across the national press.
As Curtiss points out: “Voting is the first step. In the UK, it’s done from March to mid-summer. Engagement is perennial,”
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