Stewardship is the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.
The UK Stewardship Code 2020, Financial Reporting Council
Voting rights give us the opportunity to participate in the stewardship of the companies in which we invest on our clients’ behalf. We believe companies that allocate capital responsibly, by putting environmental, social and governance considerations at the centre of their strategic frameworks, are more likely to succeed in the longer term than those companies that do not.
Combined with active engagement on key issues, James Hambro & Partners’ (JHP) voting policy aims to encourage best-practice and positive change, while placing our clients’ capital in the best position to make attractive economic returns at a lower level of risk in the future.
Our voting guidelines draw on relevant codes for the markets in which we invest, including the Financial Reporting Council’s UK Corporate Governance Code and UK Stewardship Code, and the OECD Principles of Corporate Governance.
Given the significant variation across markets, these guidelines cannot and do not seek to provide an exhaustive list of policies on all voting matters but set out our broad position on topics that frequently appear on the agenda of shareholder meetings. In certain circumstances we may decide to diverge from our stated guidelines where there is a compelling reason to do so and it is in our clients’ best interests.
We do not engage in stock lending, allowing us to vote for all shares held on behalf of our clients.
We rely on a proxy voting provider to implement the guidelines outlined in this document.
Board of Directors
An effective Board sits at the heart of good corporate governance and is ultimately responsible for ensuring a company is acting in the best interests of its shareholders. While the structure and operation of the Board will differ across jurisdictions, we believe several fundamental principles should apply:
– Boards should be sufficiently independent from management to ensure objectivity and effective challenge on corporate strategy and issues.
– Board composition should be sufficiently diverse in terms of background and expertise, and members should add value to the board through their specific skills and by having time and commitment to serve effectively.
– Boards should be responsive and accountable to shareholders, having to stand for reelection at regular intervals.
General recommendation: We will generally vote in support of director nominees, except under certain circumstances where detailed below.
i) Separation of Chair and CEO
We will generally vote AGAINST the appointment of the same person as CEO and Chair of the Board.
Separation of these roles is a cornerstone of governance in the UK, albeit combination of the two roles is more common in other jurisdictions. We believe the Board’s ability to hold management to account is weakened when one individual fills both the Chair and CEO role. We will generally vote against this arrangement at our portfolio companies and for proposals to split the two roles if currently combined.
ii) Non-independent director appointments
We will generally vote AGAINST the appointment of non-independent directors when:
– Independent directors make up 50% or less of the board
– The non-independent director serves on the audit, remuneration or nominating committee
– The company does not have key committees in place covering audit, remuneration or nomination matters
Non-executive directors may be considered either independent or non-independent; an executive director is always considered non-independent.
A non-executive director is likely to be considered non-independent if one or more of the following apply:
– Has been an employee of the company during the last five years
– Has had, within the last three years, a material business relationship with the company
– Receives additional remuneration from the company apart from a director’s fee
– Has a substantial personal shareholding of >1%
– Is a former board Chair
– Has served concurrently with an executive director for over nine years
– Has served on the board for over fifteen years
We will generally vote AGAINST the appointment of directors who have attended less than 75% of their board and committee meetings during the period for which they have served.
ii) Over-boarded directors
We will generally vote AGAINST the appointment of directors who:
– Sit on more than five public company boards
– Are CEOs of public companies and sit on more than two outside public companies
For the purposes of calculating this limit, a non-executive directorship counts as one mandate, and non-executive chair counts as two mandates, and a position as an executive director is counted as three mandates.
We will generally vote AGAINST the chair of the nomination committee where there are no women on the company’s board (all jurisdictions).
We focus our voting policy on gender diversity because it is easily measured and governance standards for gender diversity already exist in several markets. We aim to address other aspects of diversity through our engagement with companies.
c) Responsiveness and accountability
We will generally vote AGAINST individual directors, committee members or entire boards as appropriate if the board failed to act on a policy that received a majority of votes in the previous year.
ii) Board elections
We will generally vote AGAINST proposals to stagger board elections and FOR proposals to hold elect all directors annually.
Effective executive compensation plans are vital in attracting and retaining high-calibre individuals, creating a culture of performance and accountability, and aligning management interests with those of long-term shareholders.
Pay structures should be appropriate, easy to understand and linked to long-term value creation. We believe executive share ownership can act as the most simple and effective way to align interests with shareholders, provided shareholdings represent a material proportion of the executives’ remuneration and overall wealth.
Plans should be designed such that executives are not rewarded for underperformance.
General recommendation: As design and structure of compensation plans can vary widely, we review each plan on a case-by-case basis. We aim to support plans that encourage long-term value creation for our clients and vote against those we deem excessive, overly complex or short-term focused.
Further detail of specific cases whereby we may vote against compensation plans is detailed below.
We will generally vote AGAINST the remuneration report and policy where material share ownership is not required. We define material share ownership as at least two times base salary.
We will generally vote AGAINST the remuneration report and policy where actual share ownership falls below the above thresholds, except where executives are new and are working towards this target.
We will vote AGAINST the remuneration report and policy on a case-by-case basis where we consider performance targets to be either:
– Excessively tied to short-term metrics or share price performance
– Insufficiently stretching, based on average or worse performance, or tied to an inappropriate peer group benchmark
We will generally vote AGAINST the remuneration report and policy where
– Quantum of compensation is out of line with performance and/or peers
– A material increase in compensation or potential reward is not adequately explained
We will vote AGAINST the remuneration report and policy on a case-by-case basis where we deem packages to be unnecessarily complex or tied to an excessive number of metrics.
We will generally vote AGAINST the remuneration report and policy where disclosure is insufficient to understand the approach compensation plans or how outcomes have been achieved.
Audit, Accounts & Operational Items
Reports and accounts should provide a transparent and accurate review of both a company and management performance. Reports should be set out in clear language, with supplementary information provided in instances where adherence to accounting rules may result in a misleading picture of a company’s financial health or performance.
Independent and effective external auditors are necessary to ensure good corporate governance and verify the financial performance of the company.
Shareholders should be informed of any potential conflict of interest impacting the audit, including details surrounding the value of non-audit work carried out by the auditor and the length of time the same auditor has been in place.
While we recognise the benefits of enabling participation at shareholder meetings via online means, physical/face-to-face meetings should not be eliminated. Virtual-only meetings may hinder meaningful exchanges between and shareholders and management.
General recommendations: Except under certain circumstances where detailed below,
we will generally vote for:
– Approval of financial statements and statutory reports
– Proposals to ratify auditors
– Proposals allowing the convening of hybrid shareholder meetings (electronic and physical)
a) Auditor competence and independence
We will generally vote AGAINST proposals to ratify auditors where:
– An auditor has a financial interest in the company and is therefore not independent.
– Poor accounting practices have been identified that rise to a serious level of concern; for example, fraud or misapplication of established accounting principles.
– Non-audit fees are excessive (where non-audit fees > audit fees + tax compliance related fees)
b) Auditor change
We will vote on a case-by-case basis when shareholders propose a rotation of auditors, considering:
– Tenure of existing auditor.
– Any significant audit-related issues at the company.
– The length of the rotation specified in the proposal.
– Whether the company has a periodic renewal process where the auditor is evaluated for both audit quality and competitive price.
c) Shareholder meetings
We will generally vote AGAINST proposals allowing a company to hold virtual-only shareholder meetings.
Shareholder Rights & Capital Structure
Changes to a company’s capital structure can have a significant impact on existing shareholders’ claims in the future. Our voting policy around these issues is designed to protect our clients’ long-term interests.
General recommendations: We will generally vote for:
– A resolution to authorise the issuance of equity, up to a limit of 33% of existing issued share capital.
– A resolution to authorise the repurchase of ordinary shares.
We will consider mergers, acquisitions and other corporate restructurings on a case-by-case basis.
Environmental & Social Issues
Consistent with our ESG integration philosophy, we assess companies’ performance on environmental and social issues we deem to be material to long-term financial performance, and we support shareholder proposals where we think doing so can encourage improvement on relevant issues.
General recommendations: Environmental and social proposals cover a wide range of topics and we will generally evaluate shareholder proposals on a case-by-case basis. While a variety of factors will be considered, the overall guiding principle focuses on how the proposal may enhance or protect shareholder value in the short and long term.
Notwithstanding the above, given the gravity of the threat posed, we have established a more formal voting policy on climate change, outlined below.
a) Climate change – Board accountability
Climate change is the most pressing threat faced by the world today. We expect our portfolio companies to have considered this specific threat and to have made an explicit commitment to align their company strategy with the aims of the Paris-Climate Accord.
We expect all our portfolio companies to:
– Measure and report on their greenhouse gas emissions and have in place a clear strategy to reduce these outputs in accordance with global efforts to limit temperature rises to 1.5°C by 2050 or before
– Report on their emissions and climate related risks utilising a widely accepted framework such as the Task Force on Climate-related Financial Disclosures (TCFD).
– Ensure full disclosure of material climate related risks and how they are managing these risks within the Annual Report.
General recommendations: We will vote AGAINST re-election of the Chair of the Board where:
– The company has failed to make an explicit commitment to the Paris-Climate Accord and/or set an appropriate net-zero emissions target.
– A commitment is made but there is no associated change to company strategy, capital expenditure or operating plans.
– The company does not report on their climate related risks utilising a widely accepted framework such as the Task Force on Climate-related Financial Disclosures (TCFD.
– The company has engaged in lobbying against action on climate change.
b) Climate change – Climate transition plans
i) Management proposals
As companies engage with investors on climate-related issues, shareholders are increasingly being offered the chance to approve or reject a company’s climate transition action plan (‘Say on Climate’ management proposals).
General recommendations: We will vote on a case-by-case basis on management proposals that request shareholders to approve the company’s climate transition action plan. Information we will consider includes:
– The completeness and rigour of the company’s short, medium, and long-term targets for reducing GHG emissions in-line with the Paris Climate Accords
– Whether the company has received third-party assurance that its targets are science-based
– Whether a commitment is made to disclose progress on a regular basis
– Whether management teams are appropriately aligned and incentivised to achieve plan goals
– The company’s targets, disclosure and general commitment related to peers
ii) Shareholder proposals
‘Say on Climate’ shareholder proposals generally ask companies to publish a climate action plan and to put it to a regular shareholder vote.
General recommendations: We will vote on a case-by-case basis on shareholder proposals that request the company disclose a report detailing their GHG emissions, reduction targets and climate transition action plan. Information we will consider includes:
– The completeness and rigour of the company’s existing climate-related disclosures
– The company’s actual performance in reducing its GHG emissions
– Whether the proposal is unduly burdensome, prescriptive or not in wider shareholder interests
James Hambro & Partners takes its stewardship responsibilities seriously and believe proxy voting together with considered corporate engagement forms a core pillar in our goal of maximising client returns at an acceptable level of risk over the longer term.
We look forward to continuing to engage with management teams and directors of our portfolio companies as we seek to help them build long-term sustainable value for all their stakeholders.
This voting policy states our commitment to clear and responsible voting principles and we will continue to update our policies as corporate reporting and governance standards evolve.
Conflicts of Interest
When JH&P executes its rights and obligations to participate in stewardship of companies, conflicts of interest may arise where our clients or their connected parties are PDMRs (Persons Discharging Managerial Responsibility). In order to identify these situations, the Responsible Investment Committee checks the firm’s discretionary holdings against the PDMR log on a quarterly basis.
Where matches are identified, the Responsible Investment Committee reviews each case to ensure any votes cast are in line with the voting policy. The information is then passed to Compliance to be added to the Conflicts of Interest Log.