An investor’s view on shareholder engagement

Directors of listed companies have a critical role to play in communicating with and engaging shareholders. The AICD spoke with AMP Capital’s Karin Halliday for an investor’s perspective on what makes for a good engagement process and what companies could be doing better.

AICD: What would you like to see companies do more of to engage with shareholders?

Karin Halliday (KH): Companies need to spend more time understanding their shareholders. There are lots of different types of shareholders. Speaking to just your substantial shareholders, or just your domestic shareholders will give you one view. But shareholders vary – even institutional shareholders are not a homogeneous group.

My views are those of just one of those shareholders. But even then at AMP Capital Investors (AMPCI), we manage a range of equity products that have been established in response to particular client requirements. These include traditional long only funds, long-short funds, yield focused funds and sustainable funds.

All of those funds have specific mandates, risk tolerances, benchmarks and return objectives that have been agreed with the clients and trustees of those funds.

The investment and proxy voting decisions we make must fall within the boundaries of the mandates of each of those funds. For index funds, for example, the clients will expect our portfolio to fairly closely replicate the index. For sustainable funds, clients expect the portfolio to avoid certain companies.

AICD: Is it necessary for boards to be involved in the shareholder engagement process?

KH: Definitely. Boards can’t discharge their responsibilities without engaging with shareholders. Boards are accountable to shareholders. Boards are stewards of the company’s capital: financial capital, social capital, human capital.

It makes sense to me that boards would want to check in with the suppliers of capital. And seek to understand why, of all the investments we could make, we have chosen to allocate our capital to their company.

AICD: From a shareholder’s point of view, is more information always a good thing?

KH: More information is not always necessarily a good thing. Sometimes we’re overwhelmed with the amount of information that companies give us. We find that the information we need should be the information that’s relevant to the company. It also needs to be material. There’s no point just communicating with the shareholders for the sake of communicating. Directors are busy, companies are busy, shareholders are busy. We don’t want all this noise, what we really want is the important issues that companies should be focusing on and that we want them to be focusing on our behalf.

AICD: What trends are you seeing companies using to approach shareholder engagement?

KH: Companies are doing a range of different things. We’ve got companies that come in to see their large shareholders. We’ve got companies that use proxy solicitation, then they phone us to ask for our views, and then they consolidate those views.

Something I’ve appreciated is companies giving us the opportunity to meet with other directors besides the chairman and the chair of the remuneration committee. If they run a forum where they have a few directors in to talk about audit and risk management and those issues, that's quite helpful. We can then get to understand the quality of the board, the quality of their governance and their risk management.

We also find that companies are asking us a lot more about environmental, social and governance issues. The dialogue on those issues has really increased

AICD: How do you see the role of proxy advisers? Are shareholders overly reliant on them?

KH: Proxy advisers are important because proxy voting and shareholder engagement is quite a difficult task and quite a time consuming task. Not all investors have access to have that engagement with companies. It’s good for smaller institutions and shareholders to have access to proxy advice. I think they play an important role in the market.

Unfortunately, I think some shareholders are overly reliant because they just don’t have the resources to do their own voting and own engagement with companies. To be able to vote, they then rely on proxy advice. At large institutions like AMPCI, we’re able to do our own analysis, and even though we use proxy advice and gather information from their research, it’s just an input into what we’re doing. We don’t necessarily rely on it, but some other institutions probably do. You can see that from the way voting results have gone this proxy season.

AICD: Do all companies approach engagement in the right spirit with more than a tick-the-box attitude?

KH: Unfortunately I do get the sense that some companies must have it on their KPIs to engage with shareholders, so they come in and can tick that box. They haven’t really come to us with information that they want to share with us, they haven’t come to us wanting to listen to our concerns.

I think it really is important for companies to be genuine about the dialogue so that we both benefit from it. We have a lot of insights that we can share with companies, and there’s a lot that we can learn. It really needs to be a genuine two way dialogue.

AMPCI tries to work out who has got it right. We try to be pragmatic and constructive. Given the effort we make to understand companies and why they have implemented certain remuneration structures, say, it is disappointing when companies aren’t up front with us.

I find now in my meetings with companies, what I tend to do is at the end of the meeting say, “Is there anything that I haven’t asked?” I’d hate for companies to leave the meeting thinking, “I’m glad she didn’t ask that controversial question.” It will come out at some stage, so it’s best just to deal with it at the time.