Scale, not just structure
How many times do the same cats need to be skinned? What reassurances are there investors will not simply return to their traditionally more inert mode on engagement once the economy and UK plc start to pick up over the medium term? The defeat of WPP’s remuneration report, largely due to a 60% rise in total pay for chief executive Martin Sorrell, is an interesting case study. “One problem in the corporate governance world,” says PIRC’s Powdrill, “is that a lot of effort has gone into the structure of pay and people have taken their eye off the ball in terms of scale. WPP, however, was not a company where there were particular concerns about performance. It was purely a pay thing and showed a willingness by shareholders to engage on scale, not just structure.”
WPP highlights the tidal shift against excessive remuneration. If scale, regardless of performance, has reached a point investors are finally no longer willing to bear, perhaps there is a better chance of influencing longterm change. A vote against directors’ pay is also often more than a vote against remuneration specifically. It is one of the most visible and effective ways for shareholders to express their overall views and, as such, will likely remain an area of focus for shareholders’ engagement even if pay returns to more acceptable levels or the economy improves. Shade Duffy, head of corporate governance at Axa Investment Managers, says: “Other things may not translate so easily to votes, remuneration can pool together all investors’ concerns about a company from performance to strategy.”
Keeping corporate Britain in check
Furthermore, the pressure for investors to bear the responsibility for holding corporate Britain to account is mounting through initiatives like the Stewardship Code and the Government’s current plans to increase investors’ power in voting on pay. The Kay Review also stressed the need to internalise the engagement process at the asset manager level. While it is yet to be seen how far the Government will go in implementing Kay’s recommendations, it does at least share a keenness for placing the onus on the investment community for keeping corporate Britain in check.
Ultimately, both asset owners and managers have to be willing to continue their push. As Daniel Summerfield, co-head of responsible investment at the Universities Superannuation Scheme (USS) says: “The challenge will be to ensure the commitment to engagement and stewardship, demonstrated during the shareholder spring, is sustained in the long-term.
“That will require pressure and monitoring from asset owners that want fund managers to be involved and engage with companies and it is also incumbent on fund managers to be proactive.
“If there is a belief good governance leads to outperformance, then, as fiduciaries, asset managers should act as good stewards on behalf of their clients.”
Comments