Our approach to voting adopts best-practice corporate governance and ties in with our wider stewardship priorities to reflect our clients’ values.
We take a strong position on excessive and poorly aligned executive remuneration proposals, gender diversity in company leadership and environmental sustainability.
Corporate governance
We believe good corporate governance requires the following:
- A well-functioning board, which can both lead and control the business in nurturing its long-term success. This includes effective sub-committees: nomination, remuneration, and audit (and risk).
- Executive remuneration that aligns the interests of directors with the long-term interests of the company and its shareholders.
We believe that companies with poor management or weak corporate governance can represent a risk to investment performance. For this reason, we have developed a process that includes bespoke quantitative and qualitative analysis to identify and avoid companies with weak governance.
Governance evaluation process
In order to understand the quality of companies’ corporate governance, we have developed a bespoke quantitative corporate governance rating tool. We assess and score the board structure, ownership, accounting practices and management capabilities of companies.
Corporate governance and the investment process
We consider corporate governance within our investment process as part of our approach to managing risk as follows:
Our governance evaluation process is a part of CCLA’s investment process. All prospective listed equities are analysed prior to purchase.
Companies with a high governance risk, or those without independent auditors, or who have received a qualified audit report, will only be eligible for investment with the approval of CCLA’s Investment Committee. A review of high governance risk companies and the portfolio structure by governance rating are standing agenda items.
Companies will only qualify for investment with the approval of CCLA’s Investment Committee.
For such companies to be approved for investment, the relevant investment analyst must demonstrate why a ‘high risk’ rating, or the auditors’ qualification, is incorrect or not of concern.
Should an existing holding’s rating decline to ‘high risk’, a full governance review is required and a decision on continued investment is required within one week.
Integrating corporate governance into our investment process
Voting
As part of our active ownership programme, we aim to vote at all public meetings held by our investee companies. For the 12 months ending 30 June 2024, we voted on 2,768 resolutions at 171 company meetings.
To increase the impact of our votes we write to all companies prior to the meeting about our plans. We place particular focus on any resolution where we do not propose to support management and provide an overview of our concerns.
To air our dissenting voice, we use our votes when relevant directors are due to be re-elected. For instance, we vote against the chair of the remuneration committee where we have concerns about executive pay plans, the chair of the nomination committee if the company has a poor approach to gender diversity, and the chair if the business is not adequately addressing climate-related risk.
Our voting activity is managed by Institutional Shareholder Services. However, we ask ISS to adhere to our bespoke voting guidelines which led us to oppose nearly five times as many management proposals as the standard ISS voting guidelines. The records in the chart below illustrate the impact of our voting guidelines (data for the 12 months ending 30 June 2024).
