Corporate Governance and Shareholder Engagement

Transcription

1 Corporate Governance and Shareholder Engagement Everything we do at Artemis is designed to deliver outstanding investment performance and service to our clients. Our approach to corporate governance and engagement proceeds from that aim. We therefore support the seven principles set out by the Financial Reporting Council (FRC) in The UK Stewardship Code and our position in relation to them is set out below. Principle 1 Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities. Artemis is an active investment manager. With the exception of our quantitative based investment strategies* fundamental research and regular meetings with company managers form a central part of our investment process. Close scrutiny of the performance, strategy and management decisions of the companies in which we invest is central to our stock-picking approach. To protect and nurture the long-term value of our clients investments, we take seriously our duty to uphold and improve the corporate governance standards of the companies in which we invest. We consider industry guidelines such as the UK Corporate Governance Code* when assessing companies governance arrangements. In line with the comply or explain approach we will carefully consider explanations when companies fall short of complying with the requirements of the Code. In some cases, we look for evidence that progress is being made towards compliance. In other cases, an alternative approach may be more appropriate taking into consideration the size, complexity and nature of the business. We report regularly to our clients on our voting and stewardship activities. In addition, a summary of our voting record is provided on our website each quarter. Principle 2 Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship which should be publicly disclosed. Artemis is an independently managed investment management firm so it doesn t encounter some of the conflicts of interest that larger investment management or financial services companies can face. We recognise, however, that conflicts of interest still occur even in less complex businesses. For example, an investee company s pension scheme might be a client of Artemis or Artemis may have investments in Affiliated Managers Group Inc (AMG) which owns a stake in our business. Given this, we actively seek to identify any actual or potential conflicts of interest associated with our business and have put in place appropriate control processes. Artemis maintains a firm-wide conflicts of interest policy. Any potential conflicts of interest are recorded in a matrix which allows us to monitor, manage and prevent these conflicts from having an adverse impact on our clients. Both the conflicts of interest policy and the accompanying matrix are reviewed and approved by our management committee. On occasion, the interests of our clients may conflict with those of our business. In these instances, we will always put our clients first. On other occasions, a decision on voting may benefit, or be perceived to benefit, Artemis. In these instances we will either a) vote in accordance with Artemis corporate governance voting policy or b) obtain approval for the decision from Artemis chief investment officer and record the explanation. Further information regarding potential conflicts of interest is available on request. Principle 3 Institutional investors should monitor their investee companies. Our primary objective is to outperform the market and produce long term returns for our clients. To that end, we conduct fundamental analysis on the companies in which we invest. We make use of: published reports, announcements and circulars; internal and external research and data; proprietary screening tools; and meetings* with senior company managers, their advisers and other interested parties on a variety of matters such as strategy, performance, risk, dividend policy, governance and remuneration. Meetings with companies also provide an opportunity to review progress and, where we have concerns, challenge decision-making by management. Our preference is to engage with companies in private meetings. In general, we don t send representatives to general meetings. Records of meetings with management and their advisers are stored electronically and include discussions on stewardship, environmental and social issues where relevant. As investors we may not wish to be made insiders. We request that investee companies and their advisers ensure that information that could affect our ability to deal in the shares of a company is not conveyed without prior agreement. The fund managers will make their decision based on whether they wish to retain the ability to deal in the shares of the company concerned. Source: *SmartGARP is Artemis in-house proprietary, quantitative model which analyses multiple factors both company-specific and macroeconomic to construct a portfolio of stocks. Company engagement does not form part of this investment strategy. **UK Corporate Governance Code, September 2014, FRC

2 Principle 4 Institutional investors should establish clear guidelines on when and how they will escalate their stewardship activities. Artemis is an active investor but we are not activist investors. While our policy on engaging with companies does not constitute an obligation to micro-manage their affairs, we intervene where necessary in an objective and informed way. We may intervene if we have cause for concern about a company s strategy, operational performance, acquisition and disposal strategy, internal controls (or lack thereof) or remuneration packages. How we respond to these concerns depends on how we judge we might best serve the needs of our clients. For example, we may: enter into active dialogue with company boards and management; abstain or vote against management resolutions at company meetings write to the companies in which we invest to explain our expectations as owners; collaborate with other shareholders to bring co-ordinated pressure to bear on a company s board; or submit resolutions at shareholders meetings. Long-term movements in a company s share price following any intervention will be the measure by which we judge the success (or otherwise) of our actions. While this approach is designed to deal effectively with performance concerns, it does not preclude a decision to sell a holding if we deem this to be the most effective response. Principle 5 Institutional investors should be willing to act collectively with other investors where appropriate. Our engagement policy focuses on meeting and talking to company directors. But this does not preclude collaboration with other major shareholders if our objectives are aligned and if we believe collective action will result in a more positive outcome. Institutional investors interested in collective engagement should contact the corporate governance team: corporategovernance@artemisfunds.com Principle 6 Institutional investors should have a clear policy on voting and disclosure of voting activity We take seriously our responsibility to ensure that the voting rights for which we are responsible are exercised in an informed, considered manner, within the context of a positive relationship with company management. Artemis seeks to vote its shares with regard to all stocks in the UK and overseas where possible with the exception of our quantitative and fledging strategies*. Our voting activity is informed and implemented by a specialist independent corporate governance research and voting provider, Institutional Shareholder Services (ISS). The independent governance analysis with which ISS provides us with draws on market, national and international legal and best practice from around the world. Fund managers have access to this analysis in the form of governance reports disseminated through our internal company notes system. ISS provides a summary of all resolutions put forward at company meetings along with an assessment of the extent to which the company s governance arrangements are in line with best practice. We would emphasize that, while ISS provides valuable research to help with our voting decisions, final voting decisions are made by Artemis fund managers. Where our voting instructions differ from our agreed policy or where resolutions need to be reviewed on a case-by-case basis, they are confirmed by us to ISS, who transmit the instructions on our behalf. This process maintains a clear audit trail of votes cast and explanatory reasons for voting against, abstaining from or voting with management on contentious issues. Although our preferred action is to support management resolutions, the instances where our voting intentions may override support for management are set out in an appendix to this document. If companies have any voting queries they should contact corporategovernance@artemisfunds.com At present, we do not participate in stock lending for clients portfolios. In the event that a client s custodian lends stock, Artemis will not recall it for voting purposes without prior arrangement. Where there remain issues with specific companies or jurisdictions with regard to share blocking, our ability to deal in securities will take precedence over voting. Principle 7 Institutional investors should report periodically on their stewardship and voting activities. Voting activity and details where we have voted against management are included in the standard quarterly investment reports we send to our institutional clients. A summary of our voting activity is provided quarterly and is available at We have not sought an independent opinion on our shareholder engagement policy or voting process. However, as part of the due diligence processes that we conduct when outsourcing operational processes to third parties, we ensure that the services they provide meet the required standards and effective operating controls are in place. Policy last reviewed April Source: * Artemis votes for all strategies with the exception of those managed on a quantitative basis or fledgling strategies defined as those with assets of less than 50 million, unless client mandates specify otherwise.

3 Further information For further information please contact Inez Oliver on or Artemis Investment Management LLP Cassini House 57 St James s Street London SW1A 1LD 42 Melville Street Edinburgh EH3 7HA Authorised and regulated by the Financial Conduct Authority

4 Appendix: How we vote Generally we tend to support management resolutions in the context of the conduct of good corporate governance practice as set out in national and international corporate governance codes and guidance. The principles that guide our votes and instances in which our clients interests may override support for management proposals are set out below. Unless otherwise stated these principles are applied across all geographic regions. Board Composition Independence Every company should be headed by an effective board which is collectively responsible for the long-term success of the company. Our preference is for at least half the board to be independent with smaller companies having at least two independent non-executive directors. We look carefully at explanations where the independence of directors does not conform to the UK Corporate Governance Code ( the Code ) as we believe it is more important to consider the contribution, judgement and character of the director rather than rely on any formulaic criteria. For example, tenure, participation in the company s share option scheme or other business relationships are often linked to the concept of independence, but in our view these links do not necessarily prevent non-executive directors discharging their duties and responsibilities effectively. We do not consider non-executive directors of AIM companies who hold options (also common in the US) or more generally where tenure is in excess of nine years to automatically create independence issues for a board. In some countries, particularly in Europe employee representation on the board is required by law or considered best practice. In these circumstances we look to evaluate the independence of the board based on elected directors and in line with local corporate governance best practice. In Japan, dependent on board structure we will abstain if there are no outside/independent directors. In other circumstances, in the absence of a suitable explanation we are likely to abstain against individual directors if the board does not conform to the Code. Chairman The chairman is responsible for leadership of the board and ensuring its effectiveness on all aspects of its role. There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for running the company s business. We believe the roles of chairman and chief executive should be separate. It may be necessary for a short time for these roles to be exercised by the same director, however we would look for a clear rationale for this decision, and the circumstances in which a resolution is likely. We would expect a Senior/Lead Independent Director to be nominated in these circumstances. In the absence of a suitable explanation we are likely to abstain where the CEO/chairman roles are combined. We will generally support shareholder proposals to separate the roles of CEO and chairman and the appointment of a lead independent director. Election of directors We believe it is in the interests of shareholders that all directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance. Our preference is for all directors to be elected annually by a majority vote standard and boards should not be classified (where a portion of directors serve different term lengths). We will generally support shareholder proposals which seek to declassify a board or request a majority vote standard for the election of directors. We will consider abstaining on the re-election of directors where we have concerns over a director s performance or overall business performance and strategy. Committees The nomination committee should lead the process for board appointments and make recommendations to the board. A majority of the members should be independent. Audit and Remuneration committees should consist of three or in the case of smaller companies, two independent non-executive directors. We will consider abstaining on the re-election of the committee chairman or members of the committee where the committee does not conform to best practice or where we believe the committee has failed in its duties or where engagement has not been forthcoming. Report & Accounts We are likely to abstain on resolutions relating to the report & accounts where the company has restated results within the last year other than due to new accounting standards, or where the auditors have not agreed with the disclosure and accounting procedures applied (a qualified audit opinion). We will consider issues where the auditors have highlighted fundamental uncertainties within the accounts or other areas of concern or where the auditor is proposed to be changed following the issuance of a qualified audit opinion or the inclusion of an emphasis of matter in the audit report on a case-by-case basis. Remuneration We support rewarding management for good long-term performance and look for a simple remuneration structure. Other structures may be appropriate but typically consist of a salary, pension/benefits (if applicable), an annual bonus partially deferred into shares and a long term incentive with performance measured over at least three years. Performance targets should be stretching and support the strategy of the company. Combinations of strategic and financial performance measures are normally appropriate for short term incentive plans. Long term performance measures, should focus on long-term growth, for example in earnings, cash generation, dividend growth, return on capital with at least one performance measure with a significant weighting linked directly to shareholder returns. Direct shareholdings by executive directors should be meaningful as we believe this provides a strong link with the interests of shareholders.

5 Appendix: How we vote In the US we expect long-term incentives to be predominantly performance rather than time based awards. We will abstain on the remuneration policy/report where awards are not subject to performance conditions or where long term incentive schemes have a minimum performance or vesting period of less than three years. We will abstain on the remuneration report where performance conditions have been changed retrospectively In Japan overall executive pay remains moderate/low by international standards and performance related pay is not common. Therefore we are likely to support bonus payments except in certain circumstances where recipients include outsiders. Subject to local laws, we are likely to abstain where a directors notice period exceeds 12 months or where severance payments in the event of early termination of a director s contract exceed 12 months salary (pension and benefits). If the payment of a bonus is considered this should be pro-rated. We are likely to abstain where recruitment awards exceed unvested amounts left at a previous employment. Awards should be in shares and subject to performance conditions. We will consider proposals to pay a success or transaction bonus on a case-by-case basis. Shareholders rights We will abstain on anti-takeover provisions and reductions to voting rights which we do not believe are in the interests of shareholders. We will normally support shareholder resolutions which seek to improve shareholders rights and are in the best interests of shareholders generally such as one-share one-vote. Corporate actions Corporate actions are generally considered on a caseby-case basis such as capital raising, restructuring and reincorporation issues and include placings, rights issues, tender offers, issues of warrants, open offers, de-listing or moving to an unregulated market, mergers, acquisitions and disposals or where it is proposed by the board to remove the limits of their borrowing powers or amend terms of indemnification. Schemes of arrangement, significant transactions (including party-related) and bundled resolutions are also considered on a case-by-case basis. We will abstain from or vote against resolutions where the board does not specify the rights/terms attaching to the possible, future issue of preferred shares at the time of issue. We do not support resolutions which allow any other business. June /06/15/KY