The Investment Association’s Public Register
Article by Boudicca
Article by Boudicca
01 February 2019
by Sarah Woodfield of the Investment Association
Most companies are proactive about engaging with their shareholders but there are a minority of firms that aren’t taking steps to understand shareholder views and address their concerns.
For a number of years, IA members have raised concerns with those companies that receive significant dissent at their AGM and fail to acknowledge this dissent and the underlying concerns of their shareholders. When companies receive high votes against resolutions at their AGM, this can be an indication that engagement prior to the meeting wasn’t sufficient to ensure shareholder support. In these cases, investors want improved follow-up from companies to ensure that they fully understand the views of their shareholders. This will help companies and shareholders work constructively together in the future to promote the long-term success of the company.
To help facilitate this engagement the Investment Association suggested, as part of our response to BEIS’ Green Paper on Corporate Governance reform, the creation of a Public Register which would track all FTSE All-Share companies who received votes of 20% or more against a resolution. The Government agreed with our proposal, and asked the IA to develop the Public Register accordingly.
To help facilitate this engagement the Investment Association suggested, as part of our response to BEIS’ Green Paper on Corporate Governance reform, the creation of a Public Register which would track all FTSE All-Share companies who received votes of 20% or more against a resolution. The Government agreed with our proposal, and asked the IA to develop the Public Register accordingly. The Public Register brings together all these instances in one central location for the first time. It also tracks any withdrawn resolutions, as that is often a sign of a company recognising they may well face significant dissent.
Finally, it links to any update statement the company has made in the months following the AGM, which should outline the actions taken since the vote, the views heard from shareholders on the reasons for the vote and changes the company has made as a result. These statements are now a requirement of the new UK Corporate Governance Code.
Quality Update Statements – Quality Engagement
Investors will be monitoring companies’ appearance on the Public Register and are expecting update statements - this will inform engagement and voting behaviour at future meetings.
Last year, the IA published guidance on what investors expect to see in these update statements. Investors are looking for evidence that companies are engaging in a meaningful dialogue with their shareholders to understand their views, are demonstrating willingness to address them and can describe how this translates into action. Statements should:
151 companies were added to the Public Register in 2018 with 294 resolutions; this compares to 144 companies added to the Public Register with 251 resolutions in 2017.
As well as illuminating company behaviour, the Public Register gives us a lens into the issues that investors are focussing on. This year, 36% of resolutions related to Director Re-election; 25% of resolutions relate to pay; 17% relate to Share Capital; and 10% are withdrawn resolutions. The graph below sets out how this relates to the number of companies featuring on the Public Register for different types of resolutions.
% of resolutions appearing on the IA’s Public Register by Issue
This year we are seeing an increasing focus on Director accountability with a significant increase in the number of Directors receiving significant dissent against their re-election. The number of individual Director-related resolutions with more than 20% votes against rose from 66 in 2017 to 105 in 2018, an increase of 59%.
Investors are voting against Director re-elections for a number of reasons:
Investors are paying close attention to those companies that appear on the register for consecutive years for the same resolution, so called ‘Repeat Offenders’. 42% of all the companies added to the Public Register in 2018 also appeared on the Public Register in 2017 with 40 resolutions of repeat offenders appearing on the Public Register in 2017 and 2018 for the exact same resolution. This demonstrates that some companies are not doing enough to engage with investors, who are beginning to consider this as an indicator of other governance concerns.
The IA has highlighted these companies on the Public Register website and written to their Chairs, urging them to engage with their shareholders to discuss these concerns. The increased focus on these repeat offenders is intended to encourage them to engage with their shareholders and ensure their concerns are being addressed.
Impact of the Public Register
The Public Register is already changing company behaviour. 66% of companies added to the Public Register in 2018 acknowledged shareholder dissent in their AGM results and spelled out actions they intend to take. Among companies added to the Public Register in 2017, just 49% acknowledged shareholder dissent in their AGM statement. Notably, a number of companies that have innovated by introducing new remuneration structures have conducted significant engagement prior to the AGM, and have not appeared on the Public Register.
This is reassuring evidence of the quality engagement investors are looking for working in practice. Those companies that engage early with their shareholders and can demonstrate how new structures fit in with the companies wider strategy can get significant shareholder support.
At the IA we will continue to develop the Public Register and encourage all companies appearing on the Public Register to provide statements at the time of their AGM and an update statement in the following months.
The Investment Association is the trade body that represents UK investment managers, whose 240 members collectively manage over £6.9 trillion on behalf of clients.Find out more