Corporate-shareholder engagement: ICSA looks at the state of play

Survey of company secretaries in 10 different markets

Shareholder Engagement: the state of play, a new survey from the Institute of Chartered Secretaries and Administrators (ICSA) surveyed company secretaries or their equivalent companies in ten different markets, Australia, Brazil, Chile, Italy, Japan, Hong Kong (China), South Africa, Sweden, United Kingdom, and United States, and across eight business sectors.
The result of the survey was clear: that the amount of engagement had increased in the last five years for companies of all sizes and in both developed and emerging markets. Over 60% reported increased engagement, though the ‘higher’ levels were more commonly in developed markets. Respondents said that engagements are initiated equally by issuers and investors in most markets.
When companies initiate engagement, they most frequently target “investors with the largest current or potential holdings in the company and those they believe might take a hostile position”. In contrast, when it comes from investors, the value of their investment and any concerns about performance or governance are the drivers of engagement.

Controlling shareholders and investment funds (domestic and foreign) were the most likely to engage. The survey also looked at where the increase in engagement lay, or what channels showed the most increase. For issuers in developed markets the top increased channels were emails and individual meetings, with the latter the most effective and looked-for type of engagement. The majority of engagements continue to take place just before the annual general meeting or around the publication of financial results, however, the survey found some evidence that engagement is becoming “more of an ongoing process, at least in more developed markets”.
Over 70% of companies also said that the quality of their engagement with investors had improved compared to five years ago. The growing percentage of shares owned by foreign investors was considered to have increased both the quantity and the quality of engagement, because investment clients in one jurisdiction were seen as driving greater engagement with companies in others. Over 30% of large companies, and companies in developed markets, mentioned international trends as a driver.Changes in either the ownership profile or the attitude of the issuer were the most significant drivers of engagement quality improvements, but, the survey warned, increases in quantity did not always mean an increase in quality, “because of stretched resources of investors”. These results can be clearly seen in the emergence of engagement from investor ESG teams, a point of contact that had emerged during the period under study.

Some companies raised concerns that “this made engagement more complicated, as it was not always clear who would be making the investment or voting decision for the investor”. ESG engagement looks set to continue to increase, however, since the investors who responded to the survey said that “increased client demand for active oversight and/or investment approaches that take account of ESG factors” were driving this development.
That increase in demand for investors to actively oversee companies was not limited to ESG issues, however, but was felt across all engagement subjects. Investors also felt that new stewardship codes, for example, were behind increases in engagement, though they were seen by investors as a means of “raising awareness rather than changing behaviour”. Companies felt the opposite, indicating that policy interventions had not influenced their own behaviour, rather they expressed concerned that there was now a “burden of compliance that did not lead to meaningful engagement”. Moreover, companies said that it would be more useful if policy-makers focused on “removing barriers to engagement so that those issuers and investors that want to engage can do so more effectively, rather than trying to get those that do not wish to increase their levels of engagement to do so”. The main barriers to engagement were seen as shareholder identification and cross-border voting. However, all felt that more active oversight by shareholders would generally increase companies’ accountability and long-term performance. Link