HERMES PENSIONS MANAGEMENT LIMITED

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HERMES PENSIONS MANAGEMENT LIMITED
A Presentation toThird South-Eastern Europe
Corporate Governance Roundtable 21 November 2002
Click to edit Master title style
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The Role of Institutional Investors in Corporate
Governance Colin Melvin Director of Corporate
Governance
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Overview

• Shareholder interests and expectations
• Codes, activism and voting
• Linking governance and social responsibility

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Shareholders interest in governance

• Ownership and control mind the gap!
• agency costs, aligning interests, remuneration
• Share ownership confers rights and
  responsibilities
• clients/regulation, fiduciary duty, voting
• Assessing quality of mgt.
• CG as a proxy shareholder focus, independence

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What to expect of your fund manager...

• and how to get it!
• Expect
• A separate full-time resource a policy
  statement with voting guidelines integration
  with the investment process intelligent voting
  (i.e. not outsourced to an information provider)
• Get it by -
• Asking questions at investment meetings
  demanding regular reports on voting and
  engagement asking for an annual meeting with the
  corp. gov. personnel

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Codes and activism

• The benefits of self-regulatory codification
• but have we reduced the risk of corruption?
• Investor Codes
• do they confuse the issue?
• UK initiatives Myners, Higgs and the ISC
• are they adding much to the debate?

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Chain of corporate accountability
Shareholders their agents(fund managers)
Delegated authority
Board
Accountability
Trustees
Pensionbeneficiaries
Directors
Employees
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Voting

• Votes are valuable - but do investors care?
• increased interest and influence (Prudential,
  ?BoS)
• Understanding the issues and justifying the costs
• market variations and remuneration (Vodafone)
• The vote as a lever for change
• is positive abstention an oxymoron?

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Governance and social responsibility

• Making the connection via risks and opportunities
• financial rather than moral
• Exercising our (clients) rights and
  responsibilities
• interpreted in the context of fiduciary duty
• But implementation is a matter for companies
• the problems of micro-management

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Socially responsible investment and engagement

• We look at policy, process and internal control
• companies to assess and address significant
  risks
• We support sensible disclosure (and the ABI
  guidelines)
• pragmatic, value-based, shareholder-relevant
• But can we solve the worlds problems?
• NGOs, pressure groups and the political
  dimension

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Summary

• CG and SRI are concerned with ownership and
  control
• client requirements and investment processes
• Shareholder activism and voting are increasing
• in the UK guided by best practice not
  legislation
• SRI engagement focuses on risk management
• good companies make better investments