Stewardship Code disclosure
UK Stewardship Code statement – how we discharge our stewardship responsibilities
The UK Stewardship Code (the “Code”), aims to enhance the quality of engagement between investors and companies to help improve long term risk-adjusted returns to shareholders and is to be applied on a “comply or explain basis”. The Code is not a rigid set of rules and consists of principles and guidance.
Gresham House has submitted a response to the updated UK Stewardship Code that was released in January 2020 to the Financial Reporting Council (FRC), and our report is under consideration to become a signatory to the UK Stewardship Code 2020. Our report describes how we have applied the Code’s Principles in the 12-month period to 31 December 2020.
Our draft submission can be found here:
Gresham House Stewardship Report 2020 – submission draft
Principle 1: Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
We consider sound corporate governance in the companies in which we invest to be a significant factor in creating and sustaining long-term shareholder value. We take an active approach to equity ownership rights and responsibilities, by adopting a policy of constructive engagement. We follow an investment approach of targeting superior long-term investment returns through using a private equity approach and techniques to invest in quoted companies. This approach involves investing with a 3-5-year horizon primarily in smaller UK companies and European quoted companies. We manage the assets entrusted to us in accordance with the return objectives and risk tolerances specified by our clients in the interests of the ultimate beneficiaries of those assets.
The principal means by which we fulfil our stewardship obligations are:
- research, in particular deep fundamental research into the drivers of performance and value creation, both of companies and industries, which might include meetings with industry experts and potentially with a mixture of customers, suppliers and competitors of investee companies; and
- by holding regular meeting with the management, executive and non-executive directors, advisers, analysts and shareholders of companies in which we actively invest to discuss a range of issues relating to strategy and governance.
We integrate matters of governance and long-term risk management into our investment approach, and do not regard these as stand-alone matters but rather as indicators of the quality of management and the board, and thus on the company’s capacity to deliver its strategy and anticipated operational performance. We invest on behalf of individuals, whether aggregated by traditional investment institutions or by wealth managers, or who invest in our products directly. We acknowledge our fiduciary duty to preserve and enhance value in the interests of all beneficiaries on whose behalf we invest.
Principle 2: Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed.
We seek to place the interests of our clients first. We have arrangements in place to ensure that we take all appropriate steps to identify and then prevent or manage conflicts of interest between: (i) us and our clients; and (ii) between one client and another client. In particular, where we have or may have a conflict of interest with a client, we shall take reasonable steps, acting in compliance with applicable law and regulation, to ensure fair treatment of the client. Where we believe that the arrangements in place are not sufficient to ensure with reasonable confidence that risks of damage to the interests of the client will be prevented, we will inform the client of the nature or source of the conflict and the steps taken to mitigate those risks. This disclosure shall:
- clearly state that the organisational and administrative arrangements established by us to prevent or manage that conflict are not sufficient to ensure, with reasonable confidence, that the risks of damage to the interests of the client will be prevented;
- include specific description of the conflicts of interest that arise;
- explain the risks that arise as a result of the conflicts of interest; and
- include sufficient detail, taking into account the nature of the client, to enable an informed decision with respect to the service in the context of which the conflict of interest arises.
In the event that a conflict of interests arises such that the interests of our clients differ, we may be required to express different perspectives to a company reflecting the different interests of our different clients. In some circumstances, where we are unable to act in the best interests of a particular client, we may elect to cease acting for that client. Further information is available on request and we shall answer clearly and within a reasonable time any reasonable and proportionate requests by our clients for information about our policies or arrangements and how they are reviewed.
Principle 3: Institutional investors should monitor their investee companies.
We maintain close contact with the companies in which we actively invest client funds. This includes monitoring public disclosures, selected third party research and taking relevant opportunities to meet with management, other executive staff and the non-executive directors as appropriate. We respond to companies’ requests for input and comment and share concerns directly, proactively and clearly with the companies. Members of our investment team also monitor each company in which we hold shares on an ongoing basis to understand developments likely to affect the value of our clients’ holdings.
Our monitoring of companies includes consideration of the effectiveness of their boards and committee structures, including the board composition and remuneration of the board, as well as other governance questions. We also monitor companies’ strategy, capital structure, operational performance, culture, adequacy of reporting, risk management and risks arising from social and environmental matters, to the extent that our research suggests that these issues are likely to be material to the risks and returns of investing in the company.
We will not generally seek to involve ourselves in the day-to-day management of companies in which we invest. However, we may provide advice and assistance in a range of matters if and when invited to do so by the company, or in certain limited cases where we believe it is in the interests of our clients to do so, we may from time to time encourage a company to appoint one or more non-executive directors that have a direct affiliation with Gresham House or make other changes to the board. We may also introduce individuals with expertise whom the company may engage in a consulting capacity. These individuals may have a direct affiliation with Gresham House. There may be circumstances (albeit rare) where we become insiders involuntarily or inadvertently in our discussions with a company.
Principle 4: Institutional investors should establish clear guidelines on when and how they will escalate their stewardship activities.
We have not developed prescriptive guidelines for when and how we will escalate our stewardship activities. Decisions to escalate are made on a case-by-case basis by the relevant investment manager in conjunction with other members of the investment team, and depend on the materiality of the issue, the responsiveness exhibited by the company to past communications, and our assessment of whether such engagement is in the best interests of our clients. If we do have a concern with a particular company, we seek to engage with that company’s management and / or advisers at an early stage and to facilitate actions to mitigate or pre-empt problems arising or becoming entrenched. The concerns that we may raise from time to time are across the range of issues that go to the long-term value of companies, including strategy, capital structure, operating performance, risk management and governance. We firmly believe that this is an important way to preserve value for our clients, as well as to add value over time in portfolios.
Where we have concerns which the normal channels of our communication have not succeeded in resolving or addressing effectively, we will escalate these issues. Typically, this will be done by proactively seeking additional meetings with management and/or members of the board, both executive and non-executive, and making our comments in an increasingly formal way. We will typically maintain contact with other shareholders and are prepared to act collaboratively where that makes sense to generate change in the interests of our clients. In certain circumstances, after other avenues of engagement have failed, we will use all available shareholder rights as part of the escalation of our engagement, including but not limited to lodging shareholder resolutions for forthcoming meetings, calling shareholder meetings, and litigation. In certain circumstances we may also determine that it is in our client’s interests to exit an investment.
Principle 5: Institutional investors should be willing to act collectively with other investors where appropriate.
We will collaborate with other shareholders in engaging with companies when we believe that doing so is likely to advance clients’ interests, is consistent with our firm’s policies and procedures, and is permissible under applicable laws and regulations. We will typically act collectively with other investors either as part of the process of escalation of a significant concern where we believe the collaborative approach will make success more likely or, otherwise, where we consider that to do so will for specific strategic, operational or management reasons, create value.
Principle 6: Institutional investors should have a clear policy on voting and disclosure of voting activity.
We take proxy voting very seriously and devote the necessary research and management time and resources to ensuring we make good voting decisions. We use our best efforts to exercise our clients’ proxy rights and routinely cast our clients’ votes in the UK unless otherwise directed. We do not use any proxy voting or other voting advisory services and we do not engage in stock lending.
Proxy voting decisions are taken on the basis of our view of the course of action which will be in the best interests of our clients, informed by our procedures, research, engagement with the company, discussions with other stakeholders and advisers, our internal discussions and consultations, and other relevant information. If a satisfactory outcome is not reached through active dialogue with the company, we will typically tell the company in advance of our intention to abstain or vote against management and clarify the reasons grounding such intention. We have determined that it would not be proportionate to disclose all voting activity publicly given our size.
Principle 7: Institutional investors should report periodically on their stewardship and voting activities.
We maintain records of meetings with management of each company that we invest in. We have determined that, given our size, it would be disproportionate for us to regularly disclose our stewardship activities, but we are happy to respond to specific requests for information from clients or where required by applicable law or regulation, on our stewardship activities, including, with regard to collective engagement. Similarly, it would be disproportionate for us to obtain an independent opinion on our engagement and voting processes. However, each of our funds has an independent board to ensure we have robust procedures in place for the consideration of stewardship and voting processes.
Gresham House Asset Management Limited