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Shareholder Issues Turning From Niche To Norm In 2019

Wednesday, 17 April 2019

As they move towards stewardship rather than simple ownership, shareholders are becoming more active. At the same time, they are adopting a holistic view of what it means to be a successful business today, asking: “What is the right and ethical way to do business and be successful in the long term?”.

As a result, this AGM season will be like nothing we have experienced before. Here are the four issues that we expect to be raised time and again by shareholders, all of which have moved from being niche concerns to normal points of order. 

Issue 1. ESG performance 

Fund managers are under increasing pressure from both regulators and clients to question the environmental, social and governance (ESG) performance of companies in their portfolios. They will want to see performance and KPIs for the future, and they will be keen to see that these go beyond the immediate business to include the full supply chain. 

Issue 2. NEDs and auditors in the spotlight 

The predominance of a small group of audit providers will continue to raise questions during 2019: are they effective, independent and unaffected by the many ongoing controversies? And what of NEDs? The UK Corporate Governance Code notes the importance of them having enough time to fulfil their duties, and shareholders will also be keen to know NED’s advice is not influenced by their own interests or those of other members of the company.

Issue 3. Gender and beyond 

More than half of investors actively engaged with UK companies on gender diversity in 2018*. This will continue to be a focus this year, but shareholders are now widening their views on the type of diversity they want to see on boards. One example of this is diversity of skillset, covering everything from questioning levels of marketplace knowledge to understanding how to tackle cyber security issues. 

Issue 4. A plan for the future  

Alongside the examination of a board member’s relevance to the company, shareholders will look to assess their likely path (or not) to the top job. Clarity of who’s next in line and how and when they will get there will be called for, especially in companies with a long-serving or notable leader. Still fresh in their minds is that it wasn’t long after shareholders called for more detail about WPP’s succession plans that Martin Sorrell retired.  

These four critical issues need to be worked on continuously and forevermore: they can’t be addressed meaningfully in a one-off annual conversation. Instead, shareholder engagement should be an open and ongoing dialogue, demonstrating progress to date and the future direction of travel. 

While not all shareholders are activists, most are now intent on being more active. In addition, we predict ESG concerns will accelerate as more institutional investors follow the lead of Legal & General and BlackRock in outlining their ethical expectations. 

With this sea change expected not just to continue but accelerate, boards that adjust their engagement strategies now will find AGM-time to be more positive, supportive and certain.