How to engage and influence companies for a winning strategy: our way
How does Jupiter ensure that companies walk the talk on governance issues and care for all stakeholders? Edward Bonham Carter, Ashish Ray and Andrew Mortimer shine a light on how we seek to effect behavioural change for the benefit of our investors and the wider world over the longer run.
For a company to thrive and prosper, protecting the interests of all the stakeholders in the business is imperative. There is increasing realisation and acknowledgement that shareholder primacy is not good for the long-term interest of a company.
As an active asset manager running high conviction strategies, we use our underlying investments as an instrument of change. We try to make sure that the companies that we invest in are good long-term businesses, sustainable in the wider sense of the term. To achieve that we hold discussions with companies and seek changes through voting. The goal is a better world and higher returns.
The way we go about engaging companies is to set the priorities first. We identify our top holdings, define our path of engagement, and follow up with any voting.
We are realistic in our expectations. We know we can’t expect overnight results. In dealing with issues such as succession or decarbonisation, the process could take years for change to manifest. Even if we’ve been successful in effecting the desired change, we don’t relax by saying “mission accomplished.’’ We immediately switch to the next phase of our stewardship engagement.
We seek to influence the decisions of companies either directly or collectively with other interested parties. This applies in scenarios where we may need to leverage our voice on a company-specific issue or work together with peers or other organisations when confronting systemic risks such as supply chain or climate change. One such partner has been the Investor Forum1, where we have also benefited from collective action as a small shareholder in companies.
Our stewardship conversations with companies focus on drivers of long-term value to protect our client’s interests. Part of these duties involve approaching boards on how they are taking responsibility to understand Environmental, Social and Governance (ESG) risks and opportunities. We will also use this platform to impart our own views and work together with companies on shared goals.
But over time we realised that companies can only prosper in the long term if they pay due heed to the needs of competing stakeholders within companies –that includes customers, employees, executives, and shareholders.
So, a lot of our work and our engagement is focused on understanding who the key stakeholders in the business are. And we try to get an insight into how the boards of those companies are addressing those interests. That’s crucial for the long-term sustainability and success of that company.
In recent years, ESG as a concept has gathered steam as investors around the world seek solutions to concerns such as global warming and income disparity. Improving governance is really the means through which companies are going to add value to the environment and social aspects of the equation.
For example, we tackle systemic risks such as climate change that may impact our holdings by collaborating with a wider group. In 2019 Jupiter became a member of Climate Action 100+, an investor initiative which seeks to target collective action around a selection of the world’s highest emitting companies and coordinate shareholder engagement with this subset.
The stakeholder lens is very important for us because that may determine the success or failure of a company in the longer run. Increasingly, trade unions, civil society groups as well as NGOs are also approaching us, and we are always open for engagement with such entities. Even if we don’t always agree with their positions it is important to remain open and objective in terms of dialogue.
But we don’t keep talking with companies for the sake of it. If the desired results are not achieved, there could be value destruction. While we don’t have a formula for mapping the path of engagement, we follow a certain discipline in assessing progress. We have some outcomes and targets in mind, and we try to stick to them.
The Stewardship Committee at Jupiter has oversight of our engagement and activities. We also have risk management challenge meetings with fund managers. The CIO’s office also conducts reviews through inputs from fund managers at both the interim stage as well as annually and each of those reviews contain stewardship as well.
To verify whether companies are indeed doing what they profess to be doing, we speak to a wide array of people, including non-executive directors and audit committees. And it’s important to emphasise that we often meet the chairman of companies separately from the CEO or the finance director to make sure they have a medium to long-term vision for the company.
Overall, our approach is not about box ticking. We study all aspects of a business and take a considered view keeping in mind all stakeholders to generate alpha.
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