Hewitt Risk Management Services Ltd Policy on Shareholder Activism
On 2 July 2010, the UK’s Financial Reporting Council (“FRC”) introduced a new UK Stewardship Code (the “Code”) which is the first code directed specifically at investors rather than companies.
The overall policy objectives of the Code are to:
- Set standards of stewardship to which institutional investors should aspire, and maintain the credibility and quality of these standards through independent input on the content and monitoring of the Code;
- Promote a sense of ownership of the Code amongst institutional investors in order to encourage UK and foreign investors to apply and report against it;
- Ensure that engagement is closely linked to the investment process within the investment firm;
- Contribute towards improved communication between investors and the boards of the companies in which they invest; and;
- Secure sufficient disclosure to enable asset managers’ prospective clients to assess how they are acting in relation to the Code so that this can be taken into account when awarding and monitoring fund management mandates.
Hewitt Risk Management Services Ltd (HRMSL) understands the needs of investors with regard to the sound corporate governance of companies, and, following on from this, the need to ensure that voting rights are used responsibly. However, as HRMSL's business model is to delegate the management of its portfolios to underlying investment managers it does not get involved in the actual buying and selling of shares in companies and is therefore one stage removed from being aware of, and, if necessary, acting on any concerns about a company's performance or governance. Accordingly, it is the underlying investment managers chosen by HRMSL who are responsible for direct trading in companies and for assessing and acting on concerns about these companies.
As part of its due diligence on the underlying managers which it uses, the business may consider how these managers implement the Stewardship Code and what their policies are in relation to shareholder activism. Any concerns in this regard form part of our overall picture and therefore the rating of the manager.
HRMSL had previously sought to meet its obligations by making available to clients a specialist third-party provider (TPF) which clients could contract with directly (at HRMSL-negotiated fees) if they wished to take up this service. This offering was discontinued in February 2014 as there had been zero interest from clients in it. However, if in the future any clients wish to avail themselves of such a service, HRMSL would gladly seek to facilitate arrangements with the provider concerned.
The high level details of the service are as follows:
The TPF has developed responsible ownership policies which reflect the interests of funds’ beneficiaries in promoting sustainable long term value creation. These Responsible Ownership Principles form the basis on which voting and engagement work is carried out. The Principles are tailored to each region by incorporating local best practice as well as international norms and treaties.
Exercising voting rights on all applicable securities is one of the basic requirements of active ownership. As part of its voting service, the TPF votes on behalf of its clients in line with their preferred policies applying an ‘intelligent’ voting approach, where through dialogue and engagement with the company it seeks to achieve beneficial change. The vote is thereby used not simply as a mechanism for registering approval or otherwise, but as an opportunity to address concerns at the company.
The TPF engages with companies on its clients’ behalf on those strategic, environmental, social and governance issues which may be limiting long term sustainable value creation or increasing the companies’ financial or reputational risks. They engage at board and senior management level liaising as appropriate with other investors. It is an iterative process with defined, realistic and measurable objectives which can take several years to achieve. The TPF takes a constructive and discrete approach to dialogue with companies believing that engagement is likely to be most effective when carried out in private.
Public Policy and Best Practice
The TPF represents its clients in debates on public policy matters globally to protect and enhance shareholder value. This work extends across company law, which in many markets sets a basic foundation for shareholder rights; securities laws, which frame the operation of the markets and in developing codes of best practice for governance, disclosure and the management of key risks. In addition to this work on a country-specific basis, they address global regulations and best practice, including in the areas of accounting and auditing standards.
Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.