Discussion – Stewardship
If a significant body of investors are having the same conversation, their voice is ampli- fied and is taken with
a certain seriousness. Shipra Gupta Investments stewardship lead Scottish Widows
drew them from. We have fired managers who are failing to take material risks or opportunities into account. We have had conversations about what is good stewardship in Asia and now we are having conversations around what is good stewardship in the US. We set a bar; do we now have to lower it? Gupta: We are having the same conversa- tions. As an asset owner we engage our- selves in a limited way, either directly or through collective measures. A lot of this is about showing best practice, about monitoring our managers, challenging them on how they voted and showing them what others are doing. Rawson: The ability for owners to influence managers depends upon good transparency on their practices. This comes back to stew- ardship reporting, where, while weak glob- ally, the UK is leading the way. Asset owners that have the conviction to then fire their managers are terrific. We have a number of asset owners in our col- laborative initiatives and the influence they have in getting managers to back a resolu- tion or sign a statement is tremendous. Yet we also face cases where asset manag- ers refuse to vote. It is when you hit those barriers and are not able to resolve them that you have to be prepared to move a mandate. That is the stewardship super- power asset owners have.
44 | portfolio institutional | July-August 2023 | Issue 125
Gupta: Our role is to influence the market. If we can move a manager’s vote, and therefore how all their clients’ shares are voted, we have played a bigger role than just moving our votes. That is where the difference is. This market is fast evolving and there will be variations on how to make progress using shareholder rights. Bishop: We have been having conversa- tions around fixed income and asking: how is buying a new issuance different from voting? It is saying yes or no to a company’s strategy every time it comes back to you. You can do it below the radar in that it does not have the same level of scrutiny as voting. If your manager is finding it hard to vote against a company, perhaps they could refuse to buy the next debt issue unless changes are made. Fixed income feels more opaque than equities if they want to do the right thing. Marks: Stewardship is across the capital structure. It’s not equity ownership, it’s asset ownership. When we engage, we engage with corporates on all aspects of their strategy. It is just as relevant, if not more so, when we are supplying primary capital via debt issuance than voting on secondary capital in the equity market. Bishop: It is a decision you make more often. Equity managers invest for 10 years while they have to decide about debt every six months.
Gupta: In fixed income this is not used enough. Whenever we engage with our managers in this area, we rarely find examples of where the fixed income desk has led such stewardship. It is usually the equity and fixed income desks coming together to do it. Bishop: We have met fixed income man- agers who have told us: “Stewardship doesn’t apply in fixed income.” Gilshan: But it is also about optimising the points at which you have the most power. One of the most fascinating engagement meetings I ever had was with a US com- pany. All the risks we were worried about came to fruition because of a combined chair and CEO. When they appointed an independent chair, we told him that our economic exposure was beyond our equi- ties and he had a lightbulb moment. It is about not having these systems working in isolation but optimising the positions that we have. Voting decisions are often binary. It is yes or no, for or against. How we capture the nuance of that decision is why I believe that vote reporting needs to improve and is why I am delighted to be leading the working group the Financial Conduct Authority has convened to look at that. We have all these rights, but it is about optimising them to the best of our ability for savers.
The Stewardship Code is under review, so what will it look like going forward? Chapman: We are not overhauling it. It is fit for purpose following the 2020 review. What we will look at is clarifying, streamlin- ing and raising expectations in some areas. We want to focus on the role of systemic stewardship. Today we have talked about system change and the role of collabora- tion and what that means, especially if you are a universal owner. We are also looking at a common lan- guage for stewardship. We see a wide interpretation of engagement in report- ing and that makes it difficult to compare and assess the efforts of investors.
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