2016 Corporate Governance Report
Active ownership
Positive engagement to enhance long-term value
“Effective corporate
governance means caring
for our clients’ future by
empowering the companies
in which we invest to create
sustainable long-term value”.
Sacha Sadan - Director of
Corporate Governance
Our clients trust us to manage, safeguard and help grow the value of their
assets and effective corporate governance can help us achieve this. We take this
responsibility seriously and devote significant resources to this effort. We report on
our actions for clients and this is a summary version of the full 2016 report.
ACTIVE ENGAGEMENT IN 2016
WHAT WE DO
We use our scale and influence to
ensure that companies integrate
material
environmental,
social
500
and governance (ESG) factors
into
their
everyday
OUR 500 COMPANY MEETINGS
meetings
held
in order to develop resilient
strategies, think longer-term and
consider all of their stakeholders.
We
also
and
regulators
encourage
environment
in
to
which
an
good
management of ESG factors is
valued and supported. This helps
to protect and enhance long-term
diversity, board refreshment,
47%
293
Meeting discussing
environmental and
social issues
markets
create
1. Board composition, e.g.
Companies
met
thinking,
Companies based
outside of the UK
23%
TOP FIVE THEMES DISCUSSED IN
39%
UK companies
voted against (at
least one resolution)
prospects for our clients.
UK board directors
voted against:
89
quality, skills
2. Remuneration
3. Strategy
4. Nomination and succession
5.Climate change
2016 Corporate Governance Report
Our independent Corporate Governance team covered a
wide range of initiatives in 2016. Among many other things
we have been vocal on the importance of cyber security,
preventing food waste, and promoted best practices on
reducing short-term reporting and executive pay.
Our work is truly global in nature, spanning everything from child labour and
human rights risks related to cobalt production in the Democratic Republic of Congo
(DRC), to climate change disclosure among US oil and gas companies, and board
composition and board independence issues in Japan. We are highly active, and
haven’t abstained when voting in the last five years in the UK.
There were three key areas of focus in the year:
Board accountability/diversity
Executive remuneration
IMPROVING BOARD EFFECTIVENESS
Management matters
Climate change
Wells Fargo & Co
Board composition and quality are critical elements of
company success – it was the top theme in our company
meetings in 2016. We continued to drive meaningful change
over the year, to ensure that directors with the right skills
are contributing to board discussions and that their actions
are aligned with shareholder interests.
We hosted a seminar for new and existing non-executive
directors (NEDs), established guiding principles for external
board evaluations, and engaged with 50 companies on the
issue of diversity, including voting against 12 Chairmen at
UK companies for poor board diversity.
We also published a thought piece on US board tenure
and set out voting guidance on the topic. LGIM worked
with Zygos, an executive search consultant, to produce a
comprehensive guide on the evolving role of the Senior
Independent Director (SID).
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When Wells Fargo was implicated in an internal crossselling scandal involving 1.5 million fraudulent customer
accounts, the board clawed back $40 million from the
CEO’s pay but he remained in office. Our engagement
contributed to an outcome which included the Chair/
CEO stepping down from the company, followed by
separate CEO and Chair appointments.
2016 Corporate Governance Report
EXECUTIVE REMUNERATION
We also distributed our revised pay principles to the
Reducing the pay and performance gaps
UK’s largest 350 listed companies, taking a stronger line
on using annual bonuses to incentivise performance.
LGIM wants companies to improve the link between pay
LGIM will vote against remuneration committee chairs
and long-term performance.
where we feel they are not taking sufficient control over
executive pay, and we did so 18 times in 2016.
We published “Mind the Gap”
to
increase
awareness
between executives and the wider
and
the
and
for
society.
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We asked companies to publish the pay ratio
between the median employee and the CEO and to
explain the difference when compared with competitors.
In 2016, 59% of shareholders, including LGIM, voted
against BP’s remuneration report due to concerns
regarding annual bonuses and the granting of maximum
Long-Term Incentive Plan (LTIP) awards. We met BP five
times prior to the AGM, and have since met the company
three times to discuss remuneration policy and
structures. Engagement is ongoing, but has already led
to positive change.
CLIMATE CHANGE
It’s in our hands
2016 saw governments across the world commit to
keeping the global average temperature rise below 2°C,
as part of the historic Paris Agreement in November.
All companies, whether they emit carbon or not, need
financing. They require banks, pension funds and
insurance companies to buy their shares and debt. This
is where LGIM can have a real impact.
Our
new
Climate
commitment
Impact
towards
Pledge
engaging
details
with
the
LGIM’s
largest
companies who hold the key to a low-carbon future. For
those who do not meet the required standard over time,
this means voting against the Chairman and, where
possible, divesting.
We also held our first Climate Change Seminar in
May, alongside several client and consultant meetings
to explain how energy transition can be addressed in
investment portfolios.
3
2016 Corporate Governance Report
Delivering the best outcome for our clients
“If I can leave you with one thought
around these ESG issues, it is that they
are a part of long-term risk management
and therefore a fundamental part of
clients’ fiduciary duty.”
Sacha Sadan - LGIM Director of
Corporate Governance
We have a large, independent team reporting directly
to LGIM’s CEO and a Corporate Governance Committee,
which includes two non-executive directors. The team’s
structure has been designed to reduce potential conflicts
of interest, with a framework focused on achieving the
best outcome for our clients.
THE FULL REPORT
To read more about
LGIM’s
2016 Cor
por
engagement
activity
in
ate Gov
ernanc
e Rep
ort
Active
owne
rs
Positive
2016,
engage
ment to
enhanc
e long-
hip
term va
lue
including many more
examples of where
we
have
helped
deliver
long-term
positive
change,
please
see
full
version
this
report
the
of
by
Active
ownersh
and inf
ip me
lue
change nce to bri ans using ou
ng
r
value. to create su about real, scale
Ou
po
explains r Annual Gostainable inv sitive
estor
vernanc
how we
e
achiev
ed this Report
in 2016
.
clicking here and
also by visiting our website:
www.lgim.com/activeowner
CONTACT US
For further information on anything you have read in this report or to provide feedback, please contact us at
[email protected]. Please visit our website www.lgim.com/corporategovernance where you will
also find more information including frequently asked questions.
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