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Stewardship code

1. Principle – Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.

Based on feedback from both clients and the wider market, PIRC developed a set of best practice principles that provide a framework for how we operate our business.

 

PIRC publishes yearly shareowner voting guidelines for the various markets that we cover. These guidelines set out clearly our views on issues such as board structure, remuneration policy and management of social and environmental issues. We believe that the guidelines give both our clients and the companies we analyse a clear understanding of our view of best practice and, by extension, how we are likely to recommend shareowners vote on particular issues.

2. Principle - Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed.

One of our principles of best practice is the disclosure of conflicts of interest. PIRC has taken the business decision that, given the inherent conflict of interest, we should not seek to provide service to both issuers and shareowners. Therefore PIRC only provides services to shareowners.

3. Principle - Institutional investors should monitor their investee companies.

Monitoring of companies on behalf of institutional shareowners is the core of PIRC’s business and function as an organisation. We provide global research and voting recommendations, based on companies’ disclosures and other sources of information. In practice we undertake a daily trawl for information that could inform our view of a given company, ranging from RNS statements to media coverage. This is supplemented with information derived from meeting with companies and their representatives.

 

Increasingly we are working with clients to help them take an ongoing view on corporate governance and social responsibility at companies, rather than considering a snapshot at the time of a given company meeting. We have recently developed a quantitative tool to assist shareowners to more clearly identify where potential risks lie in their portfolios, to enable them to undertake focused engagement.

4. Principle - Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.

In PIRC’s case, we do not undertake the decision of whether and how to escalate engagement with companies, rather this is a decision for our clients.

 

We have a number of clients who delegate much responsibility to us for developing and implementing an engagement strategy. In such cases we typically provide advice on which companies in their portfolio might be most in need of focus, and on the type of engagement that might be undertaken. Such advice will be based on our own proprietary research into both the company concerned and the market as a whole, and we will explain to the client the process by which we reached our conclusions.

 

Where companies are recalcitrant we might also suggest how the client could escalate the engagement process. Once again, we will explain the process behind the advice we have provided. However ultimately the decision on what action, if any, to take lies with the client.

5. Principle - Institutional investors should be willing to act collectively with other investors where appropriate.

PIRC has a long-standing relationship with the Local Authority Pension Fund Forum (LAPFF), to which it was reappointed as research and engagement partner in the summer of 2010. Since its formation in 1990, LAPFF has been an exemplar or collaborative engagement, and, in our role as research and engagement partner, PIRC has played a central part in this.

 

PIRC regularly facilitates and/or participates in collaborative engagement with companies on behalf of clients over a range of governance and social responsibility issues. PIRC is also a signatory of the UN Principles for Responsible Investment, and participates in activity organised through the PRI clearinghouse.

6. Principle - Institutional investors should have a clear policy on voting and disclosure of voting activity.

PIRC issues shareowner voting guidelines on an annual basis in order that both clients and companies understand how we reach decisions on voting recommendations.

 

In terms of disclosure, PIRC publicly reports its voting recommendations, post-meeting, via its website. In practical terms we disclose our ‘house’ recommendations, not those where clients have their own voting guidelines. Our disclosure also provides a brief rationale behind recommendations to abstain on or vote against a particular proposal.

 

PIRC discloses its recommendations because we believe that organisations which provide advice on ownership issues must demonstrate the same level of accountability that we expect of others. In practice we have found this to be a very straightforward process, so we believe that it could be easily adopted as standard industry practice.

 

PIRC is also developing a service to help our clients who wish to publicly disclose their voting records to do so. As noted above, a number of clients have developed their own voting policies, which PIRC assists them in implementing. We believe that we are therefore well placed to assist these clients in disclosing their voting record, if they choose to do so, thus further increasing market transparency.

7. Principle - Institutional investors should report periodically on their stewardship and voting activities.

PIRC publicly discloses its voting recommendations, post-meeting, via its website. We also provide detailed updates to clients of our research and voting services on activity undertaken on their behalf on a regular basis, typically in the form of a quarterly report. This includes highlights of our voting advice at particular companies, and statistics on actual voting outcomes at company meetings.

 

For clients of our engagement services we also provide a regular update on activity, outlining the objectives behind particular initiatives and the results achieved. Once again, detailed reports to clients on a quarterly basis, however these are supplemented for some clients with more regular updates.