Active ownership tackles corporate governance
It is essential that strong governance policies and practices are in place to ensure that businesses act in the best interest of shareholders and other key stakeholders.
Why do we engage?
It is essential that strong governance policies and practices are in place to ensure that businesses act in the best interest of shareholders and other key stakeholders, in order to drive long-term sustainable value creation. We also recognize that in most cases, in order to see progress and performance on other material ESG issues, strong governance structures need to first be in place.
What can the board do?
We believe boards should play an active role in engagement with shareholders on long-term strategy, board composition, executive remuneration and capital allocation topics, alongside broader material environmental and social matters. Schroders’ approach to corporate governance is described in the governance section of our Annual Report.
What Schroders prioritizes:
We define five key aspects of corporate governance that we prioritize for our engagement:
- Boards and management: Through their fiduciary duty, boards represent the interests of shareholders and play a critical role in overseeing the company’s management and strategy. We expect companies to have strong board structures and directors in place to carry out these duties, including ensuring diversity in characteristics and thought to promote better decision-making.
- Executive remuneration: Executive remuneration can be an important tool in driving long-term sustainable returns to shareholders, delivery on strategy and creating the desired culture and behavior within organizations. We engage to strengthen the links between these three components while ensuring quantum is limited.
- Relationship with shareholders: Companies should hold a continuous dialogue with shareholders on material issues, including significant dissent before or after shareholder meetings. We encourage companies to do this all year round and not just in the wake of their annual meetings. In the case of controlled companies, there should be an independent member of the board specifically responsible for addressing minority shareholders’ concerns.
- Purpose, strategy and capital allocation: Boards are responsible for the governance and oversight of a company’s strategy, performance and management of risk. We believe it is important that the board takes responsibility for oversight of a company’s purpose and long-term strategy, and is effectively overseeing the material and salient risks that can affect long-term sustainable returns to shareholders. We encourage boards and management to deploy capital efficiently on behalf of shareholders.
- Transparency and reporting: Auditors are expected to provide robust, transparent and objective assessments of companies’ financial health. We engage to discuss the company’s relationship with auditors and the quality of the audit, as well as review the fees paid, ensuring independence and impartiality are maintained. We also engage on the responsible payment and transparent disclosure of taxes.
Deep dive: how do we engage?
In blue below are the four priority corporate governance actions for our engagement with large and medium companies.1 Where appropriate, we have aligned our engagement expectations with regional best practice, legislation and relevant Corporate Governance Codes. We also participate in a number of industry initiatives, collaborative projects and investor groups.
Find out more about Active Ownership.
1There is no standard definition for large and medium companies, and significant regional variation in what is considered large, medium or small. We recognize that smaller companies face greater resource and financial constraints than larger companies and therefore may need more time to meet our desired outcomes. When assessing company progress against our expectations, we generally compare the progress of similar sized peers based in the same region.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.