Corporate governance and voting

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:

Governance evaluation process

Our governance evaluation process is a part of CCLA’s investment process. All prospective listed equities are analysed prior to purchase.

Companies with high governance risk

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.

CCLA investment committee approval

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.

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).

Our voting record compared with ISS

Voting pre-disclosures

Nestlé - AGM on 18 April 2024

Item 7: Shareholder proposal for an amendment to the Articles of Association regarding sales of healthier and less healthy foods

Our vote intention: FOR

Management Recommendation: AGAINST

Summary: The company falls short of our expectations to use internationally accepted standards when assessing the health implications of its products and setting targets for increasing sales of healthier food.

Background: Good nutrition is fundamental to good health, yet humankind is facing a growing epidemic of diet-related ill-health. We support ShareAction’s Healthy Markets Initiative and the Access to Nutrition Index. Through this collaborative engagement we are asking Nestlé, and other companies, to commit to producing healthier products and to make these products more accessible, more affordable and more available.

By engaging with companies on nutrition we can make business models more resilient and play a role in improving public health.

Engagement to date: Over the last few years of engagement, we recognise the progress that Nestlé has made, particularly having agreed to set a sales-based target to increase sales of healthy products despite initially stating it was too early to do so.

However, while this is a step in the right direction, we are disappointed that the target is absolute and not proportional. Furthermore, some products that Nestlé classes as ‘nutritious’ for the purpose of the target (such as coffee) are typically not included in internationally accepted nutrition standards such as the Health Star Rating. Item 7 at the Nestlé AGM addresses these concerns.

Our end goal: For Nestlé to set a proportional target for sales of healthier products using government endorsed nutrient profiling models.

US Solar Fund - AGM and Special Meeting on 21 May 2024

Our vote intention:

AGM Item 5 – Re-elect Gillian Nott as Director: AGAINST

AGM Item 6 – Re-elect Jamie Richards as Director: AGAINST

AGM Item 13 – Approve Discontinuation of Company as an Investment Trust: FOR

Special Meeting Item 1 – Authorise Market Purchase of Ordinary Shares Pursuant to the Tender Offer: FOR

Management Recommendation: AGM Item 5 – FOR; Item 6 – FOR; Item 13 – AGAINST; Special Meeting Item 1 – FOR.

Summary: After a prolonged period of underwhelming returns, poor liquidity and unsatisfactory communication with the board we are pursuing a return of capital through the discontinuation of the company.

Background: CCLA is one of the largest shareholders in US Solar Fund plc (USF). USF has had an extended period of poor returns, with shareholders from IPO receiving a total return of -32.4%. This, in addition to the poor liquidity due to the sub-scale nature of the fund and the languishing discount to net asset value, led to us concluding that our client’s interests would be best served by a sale of the fund's assets or the entire company and the return of capital.

Engagement to date: We engaged with the Board about the large discount and subsequently the Board completed a strategic review of the fund. However, our view was that this progressed slowly and came with a lack of communication from the Board.

Our engagement following the strategic review has focused on concerns we’ve had with decisions the Board has taken:

The 2023 target dividend was increased at the last interim results despite the run-rate cover obviously being very weak due to issues with operating cashflows. The dividend target for 2024 has now been revised materially downwards and the 2025 dividend target is uncertain at present.
a lack of clear direction from the strategic review has been followed by two substantial write downs in the value of the assets, the second write down being unexpected.

We met with the new investment manager ahead of publishing these vote intentions. Whilst a welcome meeting, it failed to reassure us that there was an alternative path ahead. As such we took the decision to vote against the continuation of the company and hold both the Chair and Audit Committee Chair accountable for their actions and the company’s subsequent poor performance. Should Ms Nott and Mr Richards fail to secure re-election the remaining director would have the authority to appoint additional directors.

Our end goal: A sale of the company or portfolio, or a managed wind down of the company and the return of capital to shareholders.

Amazon – AGM on 22 May 2024

We co-filed a resolution at Amazon’s AGM requesting additional reporting on freedom of association and intend to vote FOR this proposal. You can read more about this here.

The above statements are an indication of how CCLA has instructed, or intends to instruct, the votes at each of the listed general meetings on behalf of the funds that it manages. The statement of CCLA’s voting intention is not a proxy solicitation, a recommendation, request, or inducement for other shareholders to vote in the same manner. All CCLA’s voting decisions are taken independently, in the interests of our funds and in accordance with CCLA’s proxy voting policy.

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Corporate governance and voting