Shareholder engagement is rising and improving

The amount of engagement between issuers and investors has grown over the past five years and the quality has improved, according to new research.

But the global study, conducted by the Institute of Chartered Secretaries and Administrators (ICSA) and the Organisation for Economic Co-operation and Development, picked up varying reasons for this growth.

Issuers in developed markets attributed it to international trends. Those in emerging markets said it usually accompanied a change in ownership while investors believed it was driven by growing client demands for active oversight or investment approaches that take account of environmental, social and governance (ESG) factors.

“Importantly, the research confirms that the global investment community believes that market forces, not regulatory intervention, is the most effective means of promoting greater shareholder engagement,” says, ICSA Director General Tim Sheehy.

“Also highlighted is that there is more non-executive director involvement in developed markets, company secretaries are increasingly involved in discussions on governance related matters while the investor relations office still retains an overall coordinating role in most cases.”

The study, Shareholder engagement: The state of play, surveyed company secretaries or equivalent corporate representatives in listed companies in 10 countries, including Australia. This was followed up with interviews with some of the respondents as well as with institutional investors.

The study found that the greater use of email and proxy advisors is helping to drive more engagement.

Most issuers indicated that the increased engagement, on their side, was driven by changes in their company’s structure or attitude, whether prompted by changes in ownership, leadership or some other factor.

That said, between 35 per cent and 45 per cent of issuers said they undertook engagement because they were ‘expected or required’ to do so.

In interviews, issuers acknowledged that investors were also more interested in engagement, but attributed the rise in engagement to their own efforts to reach out to shareholders. A number believed that increased engagement was what a wise company ought to do as part of its overall business strategy and should not need anything external to prompt it to happen.

For their part, investors said increased client demand for active oversight and investment approaches that take account of ESG factors had been the main driver for their own engagement.

They believed the greater client demand had been sparked by factors such as more interest and activity on the part of public pension funds (in some markets), the catalytic effect of initiatives such as the UN-supported Principles for Responsible Investment and some policy interventions.

Both issuers and investors reveal they now devote more resources and people to engagement than five years ago. But they still need to prioritise these resources.

For issuers, this means targeting investors with significant holdings or who they believe might take a hostile position. For investors, the prime considerations are the value of the holding as part of their overall portfolio, the seriousness of their concerns and whether there is a realistic prospect of a positive outcome.

Both issuers and investors added that resources were put under pressure because most general meetings, globally as well as in individual jurisdictions, continued to be concentrated together in a short period of time. This hampered the quality of engagement, but the survey shows there has been an uptick in ongoing engagement during the rest of the year.

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