The Investment Association’s Public Register

01 February 2019

Improving Engagement Between Companies and Investors

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.

What is the Public Register?

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 It also tracks any withdrawn resolutions, as that is often a sign of a company recognising they may well face significant dissent.

The Public Register outlines the key details of the resolution in question and provides the voting results. It then provides a link to the company’s AGM results announcement, and states whether the company has acknowledged the dissent and provided a commitment to take any further actions as a result of the AGM vote.

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:

1. Be published as standalone statement. The disclosure should not be adjunct to other regulatory news or announcements.
2. Describe the original resolution and the voting outcome.
3. Describe the engagement the company has undertaken since the vote to understand the views of their shareholders, and provide a summary of the views heard.
4. Describe any actions taken by the company as a result of views heard from their shareholders. Where the company has decided not to take any further action, they should outline why this is appropriate in the company’s circumstances.
5. Describe any future actions the company intends to take, including further engagement with shareholders and reference to the final update to be included in the annual report.
6. Where the company has appeared on the Public Register for the same resolution in consecutive years, the statement should acknowledge and set out actions to address this.

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.

Issues Causing Significant Shareholder Dissent

% of resolutions appearing on the IA’s Public Register by Issue

Director Scrutiny

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:

• They have concerns over the number of positions an individual has and ensuring that the individual has time to contribute effectively to the Board.
• They are holding individuals to account for the decisions they have made, including as members of the Nomination, Remuneration or Audit Committee, on issues such as diversity or executive pay. This year we have seen a 100% increase in the number of companies receiving high votes against the Chair of the Board, a 118% in the number of companies receiving high votes against the Chair of their Nominations Committee and an 82% increase in the number of companies receiving a high vote against the Chair of the Remuneration Committee.
• They have concerns over the independence of Directors.

Repeat offenders

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.