Stewardship Report 2020

Engagement and voting activities

Voting activities

We continue to believe shareholder voting is an important way of communicating with companies. 

In line with our principle of focusing on materiality, each voting decision is taken on a case-by-case basis by our investment managers, based on independent judgement, analysis, and the outcome of engagements with companies. As we aim to only invest in well-run companies which have strong management teams and governance structures, we typically expect to vote with the board recommendations. Further, we consider ourselves active, rather than activist, shareholders and hope there will never be a time when we need to report multiple examples of voting against companies. That said, there have been cases this year when we felt it necessary to vote against certain proposals. When we do vote against proposals, we always write to the company to explain our decision and hopefully start a dialogue.

Issue case study – auditor tenure

Once again, several of our abstentions have centred on the issue of auditor tenure. We take our responsibility for auditor appointment seriously, especially given several recent high-profile failures, most notably the recent issues with Wirecard in Germany. Best practice in Europe is to re-tender after 10 years and change auditor firm every 20 years. However, in the US indefinite tenure is common and we have been speaking to some of our US companies to understand their reluctance to change audit firm and to ensure that, as far as possible, other safeguards are in place. 

One such company is ADP (Automatic Data Processing). While overall ADP’s governance arrangements are strong, long auditor tenure was one of the topics we raised in our introductory letter when we first became shareholders in March. We were pleased that this letter not only led to a call with the Investor Relations team and the Assistant Corporate Secretary but was also discussed by the Audit Committee. The Committee ultimately decided not to put the audit out to tender, but the Chair offered us a call to explain the decision. She ran through the checks and balances they use to ensure the quality of the audit work remains high, such as carrying out an annual appraisal of the audit firm using a detailed scorecard and obtaining independent audit quality oversight by the PCAOB (The Public Company Accounting Oversight Board).

We had a similar meeting with the Chair of the Audit Committee at Avery Dennison and discussed the issue with management at several other companies. While in each case, they provided some reassurance that the Audit Committees are very aware of the issues and have appropriate mitigating controls in place, we still disagree on principle with the reappointment of long-tenured auditors and so chose to abstain on these votes.

Issue case study – shareholder proposals on proxy access

When it comes to shareholder proposals, we take the same approach as we do to company proposals: decisions are taken on a case-by-case basis particularly as voting for shareholder proposals often means voting against company management. Shareholder proposals we supported this year at the AGM’s of Amphenol and LabCorp amongst others requested a change in the share ownership threshold needed to call a special meeting. This is another area in which there is a stark difference between practices in Europe and in the US. In Europe, usually only a 5% holding is required to call a special meeting whereas in the US shareholders often cannot call special meetings at all or the ownership threshold is high (usually 25% or more). For some of the largest companies, this means needing to hold billions of dollars-worth of shares to be able to call a meeting. The rights in Europe generally do not result in multiple extra meetings and as the proposals were calling for the threshold to be dropped to 10-15% (still a higher threshold than in Europe), we chose to support measures that potentially give shareholders greater rights.

Written by Philippa Bliss , Catriona Hoare Catriona Hoare

on behalf of the investment team

  1. ↩︎
  2. Microsoft has pledged to be carbon negative by 2030, and by 2050 to remove from the environment all the carbon the company has emitted either directly or by electrical consumption since it was founded in 1975 ↩︎
  3. These include Avery Dennison, Fresenius Medical Care, Microsoft, Novartis and Unilever ↩︎
  4. TCFD stands for Taskforce for Climate-related Financial Disclosures ↩︎