In the UK, each of the National Association of Pension Funds (NAPF) and Institutional Shareholder Services (ISS) has recently published its guidelines for proxy voting for the 2015 season. Previously, NAPF and ISS followed a common approach, which has now ceased. The additional analysis and perspective on proxy voting issues is welcome. NAPF previously maintained a separate policy for voting on smaller quoted companies (last published in 2012) and has recently advised that, into the future it will not be maintaining this separate policy, but rather will apply the same basic principles on shareholder voting as it does for larger companies on a proportionate basis, accepting that some of the detail of application for smaller companies will be different. It is hoped that the treatment of smaller companies in the same way as larger companies will raise standards, encourage deeper engagement between shareholders and managers and, most importantly, increase liquidity in smaller stocks.
The NAPF considers that companies need to give better disclosure as to the following:
- the rationale for each director being on the board, with a focus on the experiences and skills that the person brings to the board rather than a recitation of his or her CV;
- greater detail of board succession planning and identification of where skills gaps lie;
- an improved scoping of risk;
- cyber security matters;
- the role of the company within society, including social impact and environmental risk and tax management/reputational risk; and
- remuneration issues.
A notable departure between the new NAPF and ISS policies is that NAPF no longer will support abstain votes, having concluded that, management should either be supported or not supported.
NAPF has confirmed that the principles of executive remuneration as previously set out by them and other leading investors in the 2013 Remuneration Principles for Building and Reinforcing Long-Term Business Success remain, namely:
- remuneration committees should expect executive management to make a material long-term investment in shares of the businesses they manage;
- pay should be aligned to long-term success and the desired corporate culture throughout the organisation;
- pay schemes should be clear, understandable for both investors and executives, and ensure that executive rewards reflect long-term returns to shareholders;
- remuneration committees should use the discretion afforded them by shareholders to ensure that awards properly reflect business performance; and
- companies and investors should have regular discussions on strategy and long-term performance.
By Edward Craft