The analysis from First Sentier MUFG found that face-to-face meetings, relevance to the company, and a strong shareholder consensus were identified as the most crucial components.
The report, Constructive corporate engagements: From a corporate perspective, reveals what is required to affect a major shift in a company’s behaviour, strategy, and policy.
The survey involved 100 senior corporate directors and CEOs from six countries and nine industries.
It intends to address the rising demand for investors to provide evidence of the stewardship rights and obligations they exercise, as well as the results of those actions.
Sudip Hazra, the newly appointed director of the institute, commented: “Understanding the company and tailoring the engagement to their business is the most important factor for driving positive results. Boards and management need to see that the engagement is thoughtful and compelling.”
First Sentier MUFG findings
Research discovered that not all suggestions had to be motivated by commercial benefits: in half of the cases (50%), a business took action because it believed doing so would result in a big stakeholder benefit at a low cost to the company.
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However, another important factor in successful encounters is explaining the significant costs of inaction.
Furthermore, the report discovered that the process’s quality is the second vital aspect.
Shareholders were present for meetings in person and interacted directly, rather than through advisors, in more than half (51%) of engagements that resulted in action.
The necessity of teamwork in implementing change is also emphasised in the study.
“Companies tend to look more favourably on proposals that demonstrate collaboration and are backed by a significant number of shareholders. Two thirds (64%) of companies in the survey preferred engagements where shareholders collaborated over those involving a single investor. While investors still need to tick the boxes of good process and high relevance, strong shareholder consensus provides even more weight to the engagement,” Hazra added.
Additionally, the studies identify the factors that may imperil engagement initiatives.
In addition to examining the challenges that businesses and their shareholders encounter when discussing environmental, social, and governance (ESG) issues, the report contends that shareholders need to better understand these complicated issues and find the right balance between them.
Kate Turner, global head of responsible investment at First Sentier Investors, stated: “The world is facing many urgent, systemic challenges, where both investors and companies need to be part of the solution. We believe we cannot simply divest our way out of issues such as climate change, so engagement is an essential part of driving positive change. However, engagement comes in many forms, and this research provides a valuable blueprint for investors and asset owners who want to make a difference and engage successfully.
“We are all putting a lot of time, energy and resources into engagement, so let’s ensure we are meeting companies where they’re at, and providing considered, relevant and meaningful suggestions.”
The report ends with a list of suggestions for shareholders to improve the effectiveness of their engagements, which include the following:
- Building trust and mutual understanding with companies.
- Discussing engagement objectives and success metrics upfront.
- Collaborating with other shareholders; and
- Holding direct, private, and face-to-face engagements where possible.
Tom Gosling, executive fellow at London Business School, and contributor to the research, concluded: “The research has robustly founded conclusions that can be applied in a practical way by investors to improve outcomes of their engagements with companies. It is therefore recommended reading for investors seeking to use corporate engagements to deliver positive results for all parties.”