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Corporate Governance

Esme van Herwijnen
By Esme van Herwijnen SRI Analyst April 2016
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Corporate Governance

Summary

Summary

We believe corporate governance matters. Governance is one of the Amity Funds nine positive pillars of responsible investing and is a fundamental part of what, for us, makes an attractive long-term investment. Corporate governance is the framework by which companies are directed and controlled for the long-term benefit of shareholders. It concerns the arrangements for appointing and remunerating directors and auditors and for ensuring an appropriate balance of independent non-executives is in place.

A strong corporate governance regime should reassure investors that the companies they invest in are managed by directors in the long term interest of their shareholders. Shareholders, in turn, exercise a stewardship role in holding companies to account via informed exercising of their voting rights and through constructive long-term engagement.

Executive Pay: How much is too much?

Executive Pay: How much is too much?

News stories about excessive executive pay have been common currency for some time. Hardly a day seems to go by without comment on so called “fat cat” pay. Whether it is banker’s bonuses or shareholder-led revolts, the topic of director compensation continues to generate headlines, debate and public consternation. Since the early investor revolts at British Gas (1995) and GlaxoSmithKline (2003), there has been an ongoing debate around the concept of excessive pay, its structure, links to performance and rewards for failure. For investors, just how much is too much?

Gender Diversity in the Boardroom

Gender Diversity in the Boardroom

Improving Board diversity has become an important consideration for investors. The number of female Directors has increased significantly over the last few years, but it has taken concerted effort. In 2011, Lord Davies published his review, (‘Women on Boards’), highlighting the fact that women made up just 12.5% of FTSE100 Board positions. His review set in train a voluntary approach that encouraged companies to aim for 25% female representation on Boards by 2015. At the end of 2015, this goal had been reached with 26.1% of FTSE100 Directors being female. The voluntary approach was proven to be effective in the UK market, while other countries have adopted a regulatory or quotas based approach. Norway introduced a mandatory 40% quota in 2003 where non-compliance can result in a fine, whilst last year Germany set a quota of 30% for women on Supervisory Boards.

Focus on Shareholder Activism

Focus on Shareholder Activism

The US is the most activist market in the world, with over 1,000 shareholder resolutions filed during the 2015 proxy season. In the UK, Europe and Asia, shareholder resolutions are much rarer; in the UK for instance, only a handful have been filed in the past five years, usually on sustainability or corporate governance issues by coalitions of SRI investors or NGOs. In continental Europe, only Sweden enjoys a flourishing reputation for shareholder activism focused on resolutions.

View from the Top

View from the Top

At EdenTree, the responsibility for making investment decisions on behalf of our clients relies on us paying very close attention to the underlying corporate governance. Companies are assessed on the quality of the governance framework in place to ensure that they appear accountable, transparent and non-conflicted. Boards should have an appropriate balance of independent non-executives with a healthy mix of skills, competencies and genders with an objective, independent external auditor. Companies should structure remuneration so as to motivate and incentivise directors without overpaying or leading to excess.

Download PDF: 'Investing in Corporate Governance'

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