Truth, trust and better dialogue is needed between companies and their key investors. That’s the main finding of a report called Enhancing Stewardship Dialogue from the 2020 Investor Stewardship Working Party.
In case you’re wondering who they are and why you should pay attention – well, it includes top institutional investors like BlackRock and Aviva Investors as well as some robust academic research. In short, this report reflects the discussions among big investors about the pluses and minuses of investor engagement as it currently stands. And needless to say – there’s room for improvement!
In a fascinating look at the relationship between companies and investors, the authors write that there’s a need for both sides to strengthen the quality of their dialogue. This shouldn’t just be left to the key milestones in the financial calendar but be an on-going conversation. For the investor, there’s the prospect of greater reward and for companies, there are undeniable benefits. To prove the point, the report points to some of the dangers companies currently face:
- As a result of ignorance, good companies can have support withdrawn at challenging or even potentially rewarding moments
- Investors fail to use the governance tools at their disposal when companies behave badly
- In an erratic world economy, companies need stability to plan their strategy
If companies really understand their key investors – and vice versa – there will be a better understanding over the required frequency of dialogue. What required – and we couldn’t put this better ourselves – is a “critical mass of shareholders who can provide constructive engagement”. If this approach was taken throughout the year, it could avoid issues like remuneration becoming AGM flashpoints – instead that thorny issue could be placed in the wider context of the company’s overall strategy. Hard to imagine any company that would disagree with that!
So how to tackle the engagement deficit? The report’s authors call on companies to set down a year long engagement plan to improve dialogue with investors. This can include a mix of one-plus-one meetings and group encounters that could bring in smaller institutional investors. One key objective would be to strengthen links with investors who are prepared to think longer term. In fact, the report urges companies to pay less heed to those engaged in short-term trading.
Once this round the year dialogue is in place, then companies can prepare alongside their top investors for issues likely to arise at the AGM. This surely would lead to more positive and constructive outcomes, the authors believe. They also call on companies and investors to meet once a year to discuss the company’s strategy and long-term performance. This should focus on the creation and protection of value within which remuneration can be discussed.
Feedback in both directions is absolutely essential with a clear understanding of whether expectations have been met. Typically, those involved will want to assess whether they met the right people, if all topics were covered and what areas of concern have emerged.
This is an excellent report in CTN’s view and we are strong believers in enhancing this kind of dialogue, particularly through the creative use of digital and visuals – especially as the investor base of major companies is likely to be spread internationally.