UK Stewardship Code
January 2018 update
Lansdowne Partners (UK) LLP (“Lansdowne”) manages fundamental global equity strategies, each team having its own dedicated portfolio managers and analysts. Central to its investment philosophy is a rigorous process of fundamental research. The research process includes meeting with company management, as well as analysis of publicly available information and proprietary and independent research.
UK Stewardship Code
The UK Financial Reporting Council (“FRC”)'s Stewardship Code (“the Code”), published in July 2010, is a voluntary code which sets out a number of principles relating to engagement by investors with UK equity issuers.
Lansdowne welcomed the publication of the Code, is supportive of its objectives, and is delighted to have been recognised as a Tier 1 signatory by the FRC (“providing a good quality and transparent description of our approach to stewardship and explanations of an alternative approach where necessary”) .
The principles of the Code, which is applied on a “comply or explain” basis, are that institutional investors should:
1. Publicly disclose their policy on how they will discharge their stewardship responsibilities.
2. Have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed.
3. Monitor their investee companies.
4. Establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.
5. Be willing to act collectively with other investors where appropriate.
6. Have a clear policy on voting and disclosure of voting activity.
7. Report periodically on their stewardship and voting activities.
The following is an outline of how Lansdowne applies the Code in its engagement with UK equity issuers.
Principle 1: Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
This policy is published so that investors and investee companies are aware of the way in which Lansdowne integrates stewardship activities into its investment process. Lansdowne has outlined in this statement each of the principles of the Code and how it complies with them or explains why it does not.
Engagement with investee companies is primarily the responsibility of the investment teams and the respective portfolio managers. Lansdowne considers access to management an important part of investment in core positions and will generally meet with the management of core positions either quarterly or half yearly in order to discuss issues such as governance, strategy, social/environmental impact and shareholder value. Lansdowne believes that its engagement with management on such issues is integral to the discharge of its stewardship responsibilities and the interests of its clients. Lansdowne is unlikely to invest in companies where it appears that management is not acting in the best interests of shareholders.
Lansdowne’s proxy voting procedures and record-keeping are overseen by Lansdowne’s Operations team who, subject to Lansdowne’s policies and procedures, refer to the applicable portfolio manager for voting decisions. When doing so, portfolio managers are provided with reports from ISS Europe Limited (“ISS”), a third party which the firm has engaged to provide corporate research and to facilitate the voting of proxies. Where the instruction from the portfolio manager is contrary to the recommendation of ISS, a reason will be requested and will be recorded in the proxy voting log.
Whilst Lansdowne does utilise ISS to assist in proxy voting, it does not generally outsource its stewardship responsibilities.
Lansdowne’s Compliance team carry out a quarterly review of the proxy voting log to ensure consistency with the firm’s proxy voting policy.
Principle 2: Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship which should be publicly disclosed.
Lansdowne maintains a robust policy on managing conflicts of interest which is designed to ensure its decisions are taken wholly in the interest of its clients. Lansdowne aims to ensure that all potential and actual conflicts are identified, evaluated, managed, monitored and recorded.
Lansdowne’s ownership structure is that of a private Limited Liability Partnership managing assets for multiple pooled investment funds and segregated managed accounts. Material potential conflicts of interest (including, but not limited to, policies with respect to trade allocation, personal account dealing, best execution and outside business interests) are disclosed to clients and prospective clients in Lansdowne’s Form ADV 2, due diligence questionnaires and, where appropriate, relevant client agreements.
As part of Lansdowne’ conflicts of interest policy, all members of staff must notify Lansdowne’s Chief Compliance Officer (CCO) if they become aware of any material conflict of interest arising, including in relation to voting proxies on behalf of clients. Where such a material conflict of interest is identified, voting instructions will be subject to assessment and approval by the CCO.
Our principal objectives when considering matters such as engagement and voting are always to act in the best interests of our clients and to treat them fairly. A summary of the Lansdowne’s conflicts of interest policy is available to clients upon request from Lansdowne’s Chief Compliance Officer.
Principle 3: Institutional investors should monitor their investee companies.
Comprehensive and continuous research and monitoring of investee companies is fundamental to Lansdowne’s investment process. Lansdowne utilises various research and support tools to meet this principle. The monitoring process will include meeting with senior management of the investee companies, analysing annual reports and financial statements, using independent third party and broker research, attending company meetings and road shows and proxy voting corporate research provided by ISS.
Lansdowne endeavours to identify problems at an early stage to minimise any loss of shareholder value. If investment teams have concerns, where appropriate, they will use their best efforts to ensure that the appropriate members of the investee company’s board are made aware of them. Such concerns may include, amongst other things, corporate governance issues where we believe they have an impact on shareholder value (including, where applicable, deviations from the UK Corporate Governance Code). However, in seeking to act in the best interests of its clients, Lansdowne may also consider it better to reduce or eliminate an investment rather than to continue such dialogue. Lansdowne investment teams review the effectiveness of their monitoring on an ongoing basis as part of the investment process.
Lansdowne maintains records of votes cast and of reasons where voting is contrary to the recommendation of ISS. It is not always administratively possible to record whether such votes were cast in respect of contentious issues due to the inherent subjectivity this entails or to record details of every engagement with management of investee companies. Lansdowne may attend General Meetings of companies in which its clients have a major holding where this is considered appropriate and practicable.
Lansdowne does not generally wish to be made insiders in normal circumstances, and therefore expects investee companies and their advisers to ensure that information that could affect Lansdowne’s ability to deal in the shares of the company concerned is not conveyed to Lansdowne without its prior agreement.
Principle 4: Institutional investors should establish clear guidelines on when and how they will escalate their stewardship activities.
As part of Lansdowne’s investment strategy, it seeks to build effective relationships with boards and management at the companies in which it invests. Lansdowne will generally look to invest in companies that it believes to be well managed. As part of the research and monitoring process, Lansdowne may look to intervene by holding meetings with management and/or directors to express Lansdowne’s concerns or express its views through other channels. These concerns will generally be motivated by the failure of management to uphold shareholder value. Lansdowne will continue to meet with the company and monitor developments to assess changes in the company’s approach. Should concerns persist, Lansdowne may seek to intervene formally through written letters addressed to the appropriate company board or committee members. In addition, Lansdowne will consider whether it would be more effective to intervene jointly with other institutions but will only do so where this is considered appropriate and in the best interest of its clients and where it is felt management are not maximising shareholder value. Lansdowne acknowledges that a variety of factors will make each situation unique and therefore the approach taken to escalation of concerns will vary on a case by case basis.
In general, Lansdowne is unlikely to make public statements, submit resolutions or requisition an EGM or shareholder proposal. Lansdowne typically believes that any escalation is best carried out on a confidential basis.
Principle 5: Institutional investors should be willing to act collectively with other investors where appropriate.
Lansdowne has no objection in principle to collective action by investors and will consider any specific action on a case by case basis subject to regulatory restraints, company strategy or governance. However, in normal circumstances, Lansdowne will tend to act on its own when engaging with or expressing concerns to investee companies.
Whilst Lansdowne may communicate with other shareholders regarding a specific proposal, it will not agree to vote in concert with another shareholder without approval from Lansdowne’s Chief Compliance Officer.
Other investors wishing to approach Lansdowne should contact Lansdowne’s Chief Compliance Officer Hugh Orange, using the following contact details:
Telephone: +44 (0)20 7290 5500
Principle 6: Institutional investors should have a clear policy on voting and disclosure of voting activity.
Lansdowne maintains proxy voting policies and procedures that are designed to ensure that it makes a best efforts attempt to vote proxies in the best interests of its clients and will always seek to vote all of its shares. Lansdowne generally votes in favour of routine corporate housekeeping proposals, including election of directors (where no corporate governance issues are involved). For other proposals, Lansdowne will assess what is in the best interests of its clients and, in doing so, may take into account the following factors:
• whether the proposal was recommended by management and Lansdowne’s opinion of management;
• whether the proposal acts to entrench existing management;
• whether the proposal fairly compensates management for past and future performance; and
• the proxy voting research provided by ISS to the investment teams before shareholder meetings.
Lansdowne does not publicly disclose voting records as it considers that such information belongs to its clients on whose behalf it has voted and not the general public.
Lansdowne generally does not lend securities on behalf of its clients.
Principle 7: Institutional investors should report periodically on their stewardship and voting activities.
Subject to underlying client confidentiality and investment strategy reasons, where requested (or as required by law), Lansdowne may disclose to a client (i.e. a segregated managed account or the governing body of a pooled fund) or a client’s fiduciaries the manner in which Lansdowne exercised voting rights on behalf of the client. The information reported, frequency and format used will be as agreed between Lansdowne and the respective client.
Where acting as investment manager to a pooled fund, Lansdowne will not typically disclose voting actions at a detailed level to the underlying investors in the pooled fund as this may result in inappropriate disclosure of confidential and sensitive portfolio position information. However, on request, Lansdowne may provide to such underlying investors summary details of how it has voted (i.e. with company names redacted).
In addition, Lansdowne may, on request, provide other details of its engagement approach and activities (such as number of company meetings held or examples of any concerns raised) to clients and underlying investors. It is not Lansdowne’s policy to publically disclose such records.
Lansdowne believes that this is an appropriate level of transparency designed to promote effective stewardship and assist evaluation by asset owners, whilst recognising that disclosure of confidential portfolio information (including as mentioned above) may, in some circumstances, be inappropriate and counterproductive.
Lansdowne’s processes relating to its corporate governance activities are included within the scope of annual internal controls testing performed by an independent accounting firm which Lansdowne has engaged to perform an outsourced internal audit function. The results of such testing are not generally made available but clients wishing to obtain further information should contact Lansdowne’s Chief Compliance Officer. We believe this is an appropriate level of independent assurance.