The Financial Reporting Council's UK Stewardship Code
LGM Investments Limited welcomed the publication of the UK Stewardship Code, as we believe asset managers can play a role in improving corporate governance arrangements in their investee companies. The Financial Reporting Council (FRC) has noted that certain aspects of the Code are not directly relevant to all institutional investors. We explain below how we apply each of the Code's seven principles.
Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
Our investment approach is based on fundamental company analysis and also recognizes that there may be significant country or regional differences in the macroeconomic environment that can influence the valuation of individual stocks. We therefore conduct our stock research within a framework of thorough macroeconomic analysis. We also believe that in immature stock markets, political, economic and corporate disclosure risks are particularly important, and we proactively monitor these.
Our strategy is to identify high-quality, growing companies with strong capital management. In many instances, this discipline effectively aligns the interest of any majority shareholders with those of other stakeholders, notably minority shareholders. Companies meeting our criteria typically have good corporate governance standards and integrity of management. We signed the United Nation's Principles for Responsible Investment in June 2008, and we are meeting the six aspirational objectives as follows:
- Introduction of an Environmental, Social and Governance (ESG) matrix into our investment process, which can have a bearing on valuations applied to companies.
- We raise ESG issues in our discussions with the management of companies in which we invest or may invest and ask for relevant information.
- We vote all proxies (where the client has delegated the authority to us and where voting services are available to us) in line with our proxy voting policy and in a manner which we believe to be in the best interest of the clients.
- We ask our service providers about their ESG policies.
- We support organizations promoting ESG awareness in the investment community.
- The LGM Group through its subsidiary BMO Global Asset Management (Asia) Limited, is a founder member of the Association for Sustainable & Responsible Investment in Asia (ASrIA), established in 2001, and a member of the Asian Corporate Governance Association (ACGA).
Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship, and this policy should be publicly disclosed.
We have documented policy on managing conflicts of interest that may exist between ourselves or anyone linked to the firm and our clients. Copies of the conflicts of interest policy can be provided upon request.
Institutional investors should monitor their investee companies.
Company visits are at the heart of our rigorous, research-driven approach. We believe that there is no substitute for detailed analysis and regular interaction with company management. Our firsthand research, arising from a controlled programmer of company visits, gives us a competitive edge. In general, we visit companies before we invest in them, conduct our own assessment of management quality and financial strength, and stay in contact with companies after a position has been taken.
Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.
While great emphasis is placed on maintaining an active discussion with the management of investee companies, we have never felt that our clients' best interests are served by engaging in activism campaigns against individual companies. Therefore, when a company proposes a course of action which is considered to be detrimental to the long-term interests of all shareholders, the investment is typically sold.
Institutional investors should be willing to act collectively with other investors where appropriate.
Where appropriate, we will act in cooperation with other investors to promote good governance of the investee company. If you wish to discuss such a situation, please contact Diane Seymour-Williams (Managing Director) and/or Thomas Vester (Chief Investment Officer).
Institutional investors should have a clear policy on voting and disclosure of voting activity.
We have adopted and implemented policies that we believe are reasonably designed to ensure that proxies are voted in the best interest of our clients, in accordance with our fiduciary duties, advisory contracts and regulation. We do not publicly disclose voting records, as we believe that this information is confidential to our clients.
Principle 7: Institutional investors should report periodically on their stewardship and voting activities.
We report in full on relevant voting activity where a current client requires this from us.