Paul lee


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Director - Hermes Equity Ownership Services - UK
Global perspectives on Stewardship Codes

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Paul lee

  1. 1. Stewardship practicalities Presentation to TBLI Europe November 12 th 2010 Paul Lee Director
  2. 2. Stewardship Codes: an international trend <ul><li>ICGN Principles on Institutional Shareholder Responsibilities 2007 </li></ul><ul><li>UK Stewardship Code launched October 2010 </li></ul><ul><li>South African Code for Responsible Investing under consultation </li></ul><ul><li>France: private draft circulating </li></ul><ul><li>Netherlands: Eumedion developing principles of good behaviour </li></ul><ul><li>Canadian Coalition for Good Governance aiming to produce code </li></ul><ul><li>EU expected to push for code or codes in Green Paper </li></ul>12/11/10 Hermes Equity Ownership Services I Presentation to TBLI Europe I Key challenge: manage cross-border implications
  3. 3. Practical implications 1: what does stewardship mean? <ul><li>South Africa: fiduciary duty context though less apparent in body of document </li></ul><ul><li>UK: limited context but client focus </li></ul><ul><li>ICGN: chain of accountability and earning the trust of underlying beneficiaries </li></ul><ul><li>France: transparency of investors to investee companies and duty to act in a long-term way </li></ul><ul><li>Netherlands: need for investors to play responsible part in the governance of investee companies </li></ul>12/11/10 Hermes Equity Ownership Services I Presentation to TBLI Europe I Woolly thinking? Fiduciary duty to clients sole legitimate basis
  4. 4. Practical implications 2: what does this entail in practice? <ul><li>France: draft focuses on voting and dialogue in relation to votes </li></ul><ul><li>South Africa: reliance on ESG language and builds from investment decisions </li></ul><ul><li>UK: discussion of escalation but built from a presumption that voting is the end point </li></ul><ul><li>Netherlands: investment, policy, monitoring, dialogue, escalation, collective action; voting secondary to this </li></ul><ul><li>ICGN: comprehensive discussion of full range of responsibilities </li></ul><ul><li>The integration question </li></ul>12/11/10 Hermes Equity Ownership Services I Presentation to TBLI Europe I If fiduciary duty is broad, so must be the actions implied by it
  5. 5. Practical implications 3: the conflicts challenge <ul><li>Poorly dealt with in most Codes – a dirty little secret? </li></ul><ul><li>Firm-wide conflicts: parent-, client- or sponsor-related, personalities </li></ul><ul><li>Personal conflicts: family and friends, personal prejudices </li></ul><ul><li>Have a policy and stick to it </li></ul><ul><li>Disclosure to clients – sunlight as the greatest disinfectant </li></ul>12/11/10 Hermes Equity Ownership Services I Presentation to TBLI Europe I Alignment with client interests, pure and simple
  6. 6. Practical implications 4: monitoring and escalation <ul><li>Maintenance of relationships on ongoing basis </li></ul><ul><li>Regular record-keeping to maintain discipline and consistent approach </li></ul><ul><li>Dialogue and contact with boards of companies identified as problematic </li></ul><ul><li>Pursue discussions with: same contacts again; other members of the board; other shareholders; others? </li></ul><ul><li>Use shareholder rights </li></ul><ul><li>Publicity only as a last resort </li></ul><ul><li>Sometimes need for acceleration of approach </li></ul>12/11/10 Hermes Equity Ownership Services I Presentation to TBLI Europe I Discipline to avoid surprises on all sides
  7. 7. Practical implications 5: collective action <ul><li>Duty to disclose collective activity and shareholdings </li></ul><ul><li>Takeover Codes and control-seeking behaviour: what is level of control, what is control-seeking? </li></ul><ul><li>Acting in Concert definitions and exceptions </li></ul><ul><li>Market abuse – concerns about trading with knowledge of particular strategies and activities </li></ul><ul><li>Safe harbours developing to reinforce public policy drive for greater stewardship activity </li></ul>12/11/10 Hermes Equity Ownership Services I Presentation to TBLI Europe I Is this more of an excuse than a real concern?
  8. 8. Practical implications 6: international divergence <ul><li>Codes do differ, in tone and focus </li></ul><ul><li>But more consistency than divergence when consider substance of standards </li></ul><ul><li>Policy; investment integration; conflicts; monitoring; dialogue; escalation; collective action; voting; transparency and reporting </li></ul><ul><li>If it is worth doing, it is worth doing worldwide </li></ul>12/11/10 Hermes Equity Ownership Services I Presentation to TBLI Europe I A manageable difference at most
  9. 9. One approach to the Codes <ul><li>Single global approach which captures all aspects of different codes </li></ul><ul><li>Overarching policy on interaction with companies and our responsibilities </li></ul><ul><li>Effective standing collaboration supplemented by ad hoc cooperation </li></ul><ul><li>Clarity on conflicts and how they are managed </li></ul><ul><li>Voting necessary but only a small portion of the work </li></ul><ul><li>Regular disclosure and transparency to enable clients to call to account and assess effectiveness </li></ul>12/11/10 Hermes Equity Ownership Services I Presentation to TBLI Europe I If it is the right thing to do, do it worldwide
  10. 10. Important information <ul><li>Hermes is a multi-boutique asset manager, independent of any broader financial services organisation. Each Hermes operating entity is either a subsidiary of, or is otherwise affiliated to, Hermes Fund Managers Limited. The main operating entities within the Hermes group which carry on business under the name of “Hermes” are listed below: Hermes Investment Management Limited (“HIML”), Hermes Administration Services Limited (“HASL”), Hermes Equity Ownership Services (“EOS”), Hermes Focus Asset Management Limited (“HFAM”), Hermes Focus Asset Management Europe Limited (“HFAME”), Hermes Private Equity Limited (“HPEL”), Hermes Real Estate Investment Management Limited (&quot;HREIM&quot;), Hermes BPK Partners LLP (“HBPK”), Hermes Sourcecap Ltd (“HSL”) and Hermes Fund Managers (North America) (“HFMNA”). </li></ul><ul><li>Each of the above named operating entities are separately authorised and regulated by the Financial Services Authority (details of their authorisation can be found at ), except for HREIM, Hermes Equity Ownership Services (“EOS”) and HFMNA. HIML currently carries on all regulated activities associated with HREIM (which is not regulated) and is responsible for marketing HREIM products to prospective investors and for arranging their investment. HIML, HBPK, HFMNA, and HSL are all registered investment advisers with the United States Securities and Exchange Commission (“SEC”). </li></ul><ul><li>If you are an investor or prospective investor in one or more of the Hermes funds, the Hermes regulated entities do not and will not act for you. For UK regulatory purposes, our client is the [fund] or [account] which we manage. In particular, we will not advise you or provide any other investment services to you and we will not be responsible for providing you with the protections afforded to regulatory clients. No employee of or other person associated with Hermes has the authority to represent otherwise, save to the extent that a Hermes regulated firm has (exceptionally) agreed to provide segregated investment management services and this has been set out explicitly in an investment management agreement to which you are a party. </li></ul><ul><li>This document has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. Prospective investors must rely on their own examination of the legal, taxation, financial and other consequences of an investment in the funds, including the merits of investing and the risks involved. Prospective investors should not treat the contents of this document as advice relating to legal, taxation or investment matters. Before entering into an agreement in respect of an investment referred to in this document, you should consult your own professional and/or investment advisers as to its suitability for you and should understand that statements regarding future prospects may not be realised. No action should be taken or omitted to be taken in reliance upon information in this document. Figures, unless otherwise indicated, are sourced from Hermes. This document may include a list of Hermes' clients. Please note that inclusion on this list should not be construed as an endorsement of Hermes' services. Should you wish to contact a client for reference purposes, please let Hermes know in advance. </li></ul><ul><li>This communication is issued and approved only for the purposes of Section 21 of the Financial Services and Markets Act 2000 (the “Act”) by HIML, which has its registered office at Lloyds Chambers, 1 Portsoken Street, London E1 8HZ. This communication is directed only at recipients who are eligible counterparties or professional clients, as defined in the Glossary to the FSA’s Handbook of Rules and Guidance. Any investment or services to which this communication relates is only available to and will only be engaged in with such persons and any other persons who receive this communication should not rely on or act upon this communication. Please note that the FSA does not generally regulate any activities referred to in this document which are not regulated activities under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. </li></ul><ul><li>The provision of the information does not constitute an offer to purchase securities to any person in the United States or to any U.S. Person as such term is defined under the Securities Act of 1933. </li></ul>12/11/10 Hermes Equity Ownership Services I Presentation to TBLI Europe I