21 May 2015
Getting companies to be more responsible
Our investment management business is one of the UK’s largest investors in the UK stock market.
We look after over £736 billion on behalf of our clients.
Our investment management business is one of the UK’s largest investors in the UK stock market. We look after over £736 billion on behalf of our clients. That includes over 3,000 of the UK’s biggest pension funds which hold the retirement savings of people across the country. We’ve a huge responsibility to help make sure that the companies we invest in act responsibly I believe that we can use our scale and influence to bring about real, positive and long-term change across world markets.
You can read about activities in our 2014 corporate responsibility report - Corporate Governance Report 2014 (PDF: 1551KB) . While our report describes all our areas of concern, I’d like to highlight four important areas:
Pushing For Increased Board Diversity To Enhance Decision Making
One of our key campaigning areas is to improve gender diversity in the boards that run companies. We’re delighted that our efforts and those of other investment groups have meant that there are no remaining FTSE 100 companies with all-male boards. In June 2014, the final FTSE 100 Company with an all-male board, Glencore, recruited its first woman. But we’re still concerned about how many of the next biggest 250 companies still have all-male boards. We will continue to engage with these companies and we’ll vote against the Chairman of companies where our engagements have been unsuccessful. We also want to extend our efforts to the US and have joined an initiative to write to 56 of the US’ biggest companies about gender diversity.
Simplifying Pay And Aligning It With Long Term Investors' Interests
The high levels of executive pay, quite rightly, remain a burning issue with the media and the British public. Last year marked the first year that shareholders in the UK were given a binding vote on executive remuneration policy. This posed challenges for companies and their shareholders. Despite this we believe that there are still two areas that need addressing:
- Companies sometimes fail to explain how the performance metrics they choose to drive executive pay would also drive their long-term strategy.
- There’s a requirement to place a cap on the level of salary increase granted each year to executives. We support those companies who choose to state that salaries increase in line with the general workforce, unless there were changes to the role of the individual.
Managing The Risk Of Cyber Security
Cyber security is a significant risk for investors. For the past few years, we have been engaging with companies on the management of cyber security and their digital infrastructure. We have categorised these risks in five high impact areas:
- Data theft
- Day-to-day operations
- Mergers and acquisitions
- Reputational threat
- The insider threat.
These risk factors can potentially destroy shareholder value by negatively affecting earnings or result in a company losing its key competitive advantage.
It’s clear that companies need to take more action. We will continue to engage with companies in order to safeguard shareholder value.
PREVENTING FOOD WASTE
The global food poverty crisis has left around 825 million people without sufficient food to eat and yet, in the UK alone, £12 billion of food is thrown away each year. We’re a major investor in many food companies. Food retailers not only can influence consumer behaviour but can also play a part to stem the level of food waste that occurs prior to it reaching the shelves of their stores. Food waste not only reduces the amount of food available for consumption but it impacts CO2 and water consumption. There isn’t a limitless supply of natural resources and climate change is already having a major impact in the food industry.
How We Can Make A Difference
My team’s role is to improve investor value within all the companies we engage with. In 2014, we didn’t abstain on any votes in the UK and we’ll continue to make our views heard. In this way, we can aim to help individual investors and employees in pension schemes to have better futures. At the same time we believe that companies must behave ethically. We’re playing our part to improve the corporate reputations of companies in the UK and internationally.