Transparency is an important and powerful driver of change and improvement. We are committed to report on our activities when sensitivities have reduced so that all parts of the investment chain can draw lessons and improve best practice.
In the case studies that follow, we seek to draw out some of the key themes that have emerged from our engagements in 2017.
Participants believed that the investment thesis for the company was strong, but that governance practice and oversight by the Board were impacting the company’s effectiveness. We engaged with the Chairman to raise the concerns of investors, which focused on issues that they felt should be addressed to better equip the organisation for its anticipated growth.
The company responded promptly and constructively to the engagement, announcing changes relating to remuneration policy, increasing shareholder communication through more regular RNS updates and launching an independent process to identify and recruit two new independent Non-Executive Directors (NEDs) with financial and exploration experience.
Members were encouraged by the approach taken in early 2017. While some felt at the time there was still more work to be done, the collective engagement closed in May, just prior to the AGM. One year on from the initiation, the company has indicated that there has not been any additional investor feedback on these issues.
BT Group plc
The engagement was initiated following the announcement of a deterioration in the outlook that compounded issues which emerged from the Italian accounting irregularities. The objective was to ensure that the company had a clear view of investor frustrations as well as an understanding of the need for prompt and decisive action to help restore the reputation of the company.
Shareholders emphasised the need to position the company for a period of transformational change in the industry, and asked for more information to understand how future capital allocation decisions will be taken. Investors also identified a need for a clearer framework to help them understand how the decisions affecting the long term franchise value of the company are taken.
BT took comprehensive action to address a number of issues that were weighing on investors’ minds, but the process of rebuilding confidence is on-going. The engagement was closed in July, pending the arrival of the new Chairman. We have suggested that there would be significant value in a Stewardship & Strategy Forum event, and are hopeful that the company will be open to this in 2018.
IP Group plc
In reviewing the proposed transaction with Touchstone plc, two Members were concerned about potential dilution in their exposure to IP Group’s underlying assets through the fundraising and combination and asked us to represent their concerns to the company.
This was not a full engagement, and was closed in July prior to the General Meeting which approved the transaction.
ECO Animal Health plc
All participants were very supportive of the management team given the strong record of execution and positive growth, but there was a shared view that the governance of the company needed to be enhanced to equip the company for anticipated future growth.
The Chairman acknowledged the points raised regarding governance structures, board composition and related party transactions and engaged immediately in an extremely constructive manner.
As a result of the engagement, on 1st December 2017, the company announced a new independent NED, and the transition of the Chairman to a non-executive role. The engagement was closed following this announcement
Participants asked us write a collective letter to ensure that their views, which many had already expressed directly with Worldpay and its advisers, were fully recognised and reviewed by the Board in advance of a decision to recommend a proposed offer for the company.
Many of these investors had been shareholders in Worldpay since its IPO, and wished to remain owners of a business which they believed had the potential to create long-term value from a rapidly growing global footprint.
Investors had a number of concerns around process, consideration and structure of the transaction. The role of the Investor Forum was to present the position of shareholders but not to propose an alternative structure, or to otherwise disturb a proposed transaction; that was a matter for the Board, its advisers and, in due course, its shareholders.
The Forum was able to move quickly and effectively to represent investor views to the Board. Participants were pleased that the company took steps to amend the structure of the offer to include a secondary London listing. The announced measures addressed the issues that were raised in our discussions. As such, the engagement was closed in August, and shareholders voted in favour of the proposed combination in January 2018.
Rio Tinto plc
This engagement was initiated in response to media speculation regarding the process to appoint a new chairman. The participants were supportive of the company and its strategy, but, given the specific challenges facing the organisation, they held strong opinions on the criteria for this key appointment.
We wrote to, and spoke with, the Senior Independent Director who was leading the selection process to amplify the strength of investor views. This engagement was concluded when the company announced the appointment of a new chairman on 4th December.
London Stock Exchange plc
The Forum initiated an engagement with LSE to address participants’ desire to better understand the CEO succession process following the launch of a campaign by an activist investor. The investors were seeking additional clarity given the complexity of the situation resulting from confidentiality agreements surrounding the process. Ultimately, investors chose to support the Board’s position.
We have encouraged the company to take action in 2018 to demonstrate the effectiveness of the Board and its plans to restore confidence in the governance framework in order to enhance the long-term best interests of the company.