The approach taken by our investment team and Corporate Finance & Stewardship team will be issue specific. Wherever possible we seek to achieve our objectives by agreement and in a confidential manner, but may be prepared to support the requisition of a meeting, or requisition a meeting ourselves, to enable shareholders as a whole to vote on matters in dispute.
M&G’s resources are generally applied based on a range of factors, including the materiality of the issue and the size of M&G’s holding. Our focus will be on issues that are likely to be material to the value of the company’s shares. As a general rule, where M&G’s holding is a small fraction of the company’s total capital and a small fraction by value of a fund, there will be proportionately less resource applied to engagement (reflecting the reality that M&G’s influence is less significant).
We would always seek to discuss any contentious issues before casting our vote, in order to ensure that our objectives are understood. To M&G, confrontation with boards at shareholder meetings represents a failure of corporate governance.
Escalation is normally conducted by the investment team alongside the Corporate Finance & Stewardship team, and may involve meeting with the company’s Chairman and/or Senior Independent Director, the executive team, other shareholders and/or company advisors. In a limited number of cases it may be appropriate for the Chief Executive Officer of M&G or the Chief Investment Officer, Equities to be involved.
We believe 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. Focused intervention will generally begin with a process of enhancing our understanding of the company’s position and communicating our position to the company. This might include initiating discussions with the Chairman and/or the company’s advisors. We may also speak to senior independent directors or other non-executive directors and other shareholders. The extent to which we might expect change will vary depending on the nature of the issue. In any event, we expect companies to respond to our enquiries directly and in a timely manner.
We expect the boards of our UK investee companies to comply with the Corporate Governance Code and 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.
In the case of Board appointments, remuneration and corporate activity, shareholders are likely to be given the opportunity to vote on the company’s approach. Where we remain unhappy with the proposed outcome of an intervention, or where the rationale is unconvincing, we will vote against relevant resolutions and, potentially, the reappointment of those directors responsible for the proposals with whom we have engaged. This is assessed on a case-by-case basis.
Ultimately, as an active shareholder, where the outcome of our engagement is unsatisfactory we have the option to dispose of an investment.