Principle 3

Institutional investors should monitor their investee companies

We consider it important to recognise that shareholders appoint boards of directors to manage company assets on their behalf, and to preserve and enhance shareholder value. Shareholders in quoted companies expect clear accountability by executive management as an essential part of satisfactory corporate governance.

Regular and proactive monitoring, including open and purposeful dialogue with investee companies, enables us to determine whether the board is fulfilling their mandate to shareholders and, ultimately, whether an investment remains appropriate. Details of the monitoring process are provided below.

Company boards must consistently satisfy customers, shareholders and the reasonable expectations of employees, as well as acting responsibly towards society as a whole, in order to ensure success over the long term.

We expect the boards of our UK investee companies to comply with the Corporate Governance Code and with the spirit of it. It is incumbent on a company to explain the rationale for diverging from the Code’s principles and, subject to this explanation, we will determine the appropriateness of the divergence on a case-by-case basis.

On occasion, we may support resolutions that are not compliant with the Code - which we believe are the right courses of action for the given circumstances or which progress towards compliance - after discussion with the company on the specifics.

Monitoring process

The monitoring process typically includes:

  • Arranging regular meetings with executive management, the Chairman and/ or other non-executive directors.
  • Daily monitoring of company announcements.
  • Reviewing company results (annual & interim).
  • Reviewing external research materials (e.g. broker research reports).
  • Attending company Capital Markets days for investors and site visits.
  • Attending broker meetings to discuss investment recommendations.
  • Engaging in specific discussions with companies on material topics, including: strategy, performance and non-financial matters (such as environmental, social and corporate governance factors; capital structures; board performance and understanding how boards are fulfilling their responsibilities; succession planning; remuneration; and culture).
  • Attending company engagement/corporate governance meetings (arranged by companies to enhance the engagement process and provide a forum for governance and responsible investment subjects to be discussed).
  • Meetings with remuneration committee chairman (in particular where the company is reviewing their remuneration policy, or prior to general meetings where sensitive or contentious resolutions are being put to shareholders to vote on).
  • Corresponding with non-executive directors in instances where issues have been raised with management, but where progress on these issues is inadequate.
  • Maintaining a record of all interactions with companies.
  • Attending shareholder meetings.