Aberdeen Emerging Capital Limited (“AECL”) Stewardship Policy
The UK Stewardship Code (“the Code”) was published by the Financial Reporting Council in July 2010 and revised in September 2012. Under the Code, AECL is required to comply with the principles of the Code or to explain why it has not done so. This document sets out the policy of AECL for engaging with the companies in which its clients invest and explains how and to what extent AECL complies with the principles of the Code.
AECL is the manager of a variety of investment companies with varying remits. The detailed approach adopted by AECL in dealing with investee companies will inevitably differ depending on the requirements of the particular client, but this document sets out the general policy and the philosophy that guides AECL in all such dealings. In the case of investee companies where both AECL’s client holds less than 1% of the voting shares and the holding is less than 5% of the value of the relevant client’s portfolio, AECL may not follow all the procedures detailed below because the cost and effort of doing so would be disproportionate to the potential benefit to the client. In addition, where AECL’s clients invest in open ended investment companies or similar structures, including exchange traded products, many of the procedures set out in this document will not be appropriate because of the nature of the investment.
Principle 1 –“Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities”
AECL’s principal concern is always the provision of the best possible service to its clients and obtaining the best possible return for the shareholders of those clients. However, AECL has always recognised the link between good corporate governance and the achievement of satisfactory results for investors. As a result, AECL has always believed in engaging actively with investee companies. The first investment company managed by AECL was designed specifically to address perceived failures in corporate governance in the UK investment trust sector. AECL makes the boards of investee companies aware of its expectations and is prepared to hold them to account. AECL has published its stewardship policy since 2010.
Principle 2 – “Institutional investors should have a robust policy on managing conflicts on interest in relation to stewardship and this policy should be publicly disclosed”
AECL has always been aware of the possibility of conflicts between its interests or those of its employees and the interests of its clients and has always sought to minimise those conflicts and to resolve them, where necessary, in such a way that its clients are not disadvantaged. It has maintained a formal conflicts of interest policy since 2007. AECL is also aware of the possibility of conflicts between the interests of different clients. Where these might arise, AECL agrees with the boards of the client companies procedures whereby such conflicts may be resolved.
Principle 3 – “Institutional investors should monitor their investee companies”
AECL monitors all its investee companies. In particular, AECL monitors corporate governance arrangements and board structures. Meetings are held with management to discuss the Company’s strategy and the best way of achieving AECL’s investment objectives. These meetings are recorded by AECL. Where AECL has concerns about the governance or performance of an investee company it will raise these with the chairman either in a meeting or in writing or both. AECL will request not to be made an insider unless there is a clear benefit to its client and unless the period for which it will remain an insider is definite and short. However, when these conditions are satisfied, AECL is prepared to be made an insider.
AECL’s investment managers conduct their own monitoring of investee companies to determine whether the corporate governance and conduct of those companies is satisfactory. AECL does not rely on the recommendations of any outside agency in deciding how to vote.
AECL seeks to attend general meetings of investee companies that are based in the UK and to take the opportunity of such meetings to question the board either formally as part of the business of the meeting or informally outside the meeting. Failing this, and particularly where AECL’s holding in a company is small, AECL will attend analysts’ meetings or results presentations and use these opportunities to question management. In the case of overseas companies, AECL will seek to meet management when possible, bearing in mind that it may not be cost-effective to travel to general meetings.
AECL maintains records of votes cast at general meetings of investee companies and the reasons for any votes that are against the advice of the board of the investee company.
Principle 4 – “Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value”
AECL forms a view as to the correct course of action for investee companies and attempts to persuade management to follow that course. Where it appears that management are not following the recommended course and AECL still believes that they should, AECL will consider further action such as consulting other shareholders (see below). AECL will also seek to influence management by raising concerns with the company’s advisers. If necessary (and if possible) AECL may requisition a resolution at a meeting of the company or may requisition a meeting to oblige management to carry out the recommended actions.
Principle 5 – “Institutional investors should be willing to act collectively with other investors where appropriate”
AECL is always prepared to act with other investors where this is likely to produce a better result for its clients’ shareholders. Where AECL has a clear view of the direction that an investee company should be taking but the management of that company appear to be reluctant to consider that course, AECL will seek the views of other shareholders with a view to persuading management that the recommended course of action is in accordance with shareholders’ wishes.
AECL will always take great care to avoid forming a “concert party” under the Takeover Code unless it considers that such action is the best interests of its clients’ shareholders. In no circumstances will AECL put itself in a position where it might have to make a bid for an investee company under Rule 9 of the Takeover Code.
Principle 6 – “Institutional investors should have a clear policy on voting and disclosure of voting activity”
AECL’s policy is to vote all the shares it controls on behalf of its clients. However, where the holding is below the limits set out in “Background” above it may decide not to do so. Where AECL does vote, it reviews the resolutions and votes according to its perception of the interests of its clients’ shareholders. This means that AECL will only support the board of the investee company if it thinks that this is best for shareholders. AECL’s voting record is disclosed to its clients on request. However it is not usually publicly disclosed as this might make engagement with investee companies more difficult. As stated above under Principle 3, AECL does not rely on the recommendations of any outside agency in deciding how to vote.
Principle 7 – “Institutional investors should report periodically on their stewardship and voting activities”
AECL prepares reports for each of its quoted clients at each board meeting of the client. These reports cover the involvement of AECL with all significant investments including meetings with management, voting and any other action taken by AECL in respect of that investment. In view of the current nature and scale of its business and the close relationships it has with its clients, AECL does not consider that it would be cost effective to obtain an independent opinion on its engagement policy and voting processes.