Liontrust engagement and voting report 2021 - Flipbook - Page 28
Governance
Remuneration
Liontrust considers votes on remuneration to be significant and
recognises the influence votes against directors’ remuneration
may have on driving positive changes at companies. However,
we consider votes in a holistic way and are conscious of
mitigating factors that may arise at individual companies. We are
keen, whenever possible, to enter dialogue with companies on
remuneration as part of our engagement process. Our custom policy
for FTSE 350 and ISEQ20 on remuneration follows UK corporate
governance best practices and, as a result of our analysis and
monitoring, is aligned with ISS’ voting policy.
In 2021, Liontrust chose to vote against or to abstain/withhold
at 162 meetings for reasons related to remuneration at investee
companies. This was out of a possible 591 meetings where
Liontrust voted on remuneration, or 27.41% of the time. These
figures exclude remuneration relating to auditors.
Board independence
Liontrust’s custom voting policy for FTSE 350 and ISEQ20 takes into
account best practices set out by the UK Corporate Governance
Code. A common reason for Liontrust to vote against a director
in 2021 was due to questions surrounding the independence of
proposed non-executive directors at investee companies. Should
a board not be composed of at least 50% non-executive directors
whom the board considers to be independent, a vote against that
non-executive director is warranted.
Maintaining a sufficient proportion of independent board members
is essential to developing a competent, non-bias board. A
majority of independent board members increases the likelihood
that the board will challenge inadequate Chairs and therefore
augment accountability to shareholders. We remain cognisant that
governance norms differ for FTSE AIM and Small-Cap companies
and this is reflected in our custom voting policy, which makes
allowances and provides room for these companies to grow. The
most common reasons cited were:
• Director tenure: the proposed terms of office exceeding three
years
• The director sitting on the Audit and/or Remuneration committee
• Combined chair/CEO role
In 2021, there were 692 meetings where Liontrust voted on items
that can be classified as director elections. Liontrust voted against
28 - Liontrust: Engagement and Voting Report 2021
or chose to abstain on 377, or 54.49%, of these meetings. For
reasons pertaining to independence, Liontrust voted against directors
or abstained/withheld on proposals at 32 meetings. This amounts
to 4.62% of eligible meetings where director elections were voted
upon, or 8.49% of meetings where Liontrust chose to vote against,
abstain/withhold on a director’s election. On a resolution level,
Liontrust voted against, abstained upon or withheld on 486 votes
for director elections out of a possible 4,885 resolutions (9.95%)
for reasons citing independence as part of the rationale for the vote
instruction.
As part of the Economic Advantage investment process, the
team only invests in smaller companies when senior managers or
directors hold 3% of the share capital. This is because research
demonstrates that equity ownership motivates key employees,
helps to secure a company’s competitive edge and leads to better
corporate performance. This part of the process is also considered
in voting decisions. While Liontrust encourages boards to meet the
necessary independence requirements overall, consideration is
given to the owner-manager on the board in relation to tenure. In
such cases where we support an over-tenured board member, we
encourage through engagement that the individual is not a member
of the audit and remuneration committee, that there is a Senior
Independent Director appointed (if the person in question is the
Chair) and that the overall balance of independence is appropriate
for the size of the company.
Auditors
Liontrust’s voting policy does not support what it considers to be
‘excessive’ auditor tenure (10 years+). We believe that a rotation
of auditors is necessary to reduce any potential risks that could arise
from extensive rapports between the audit firm and the investee
company, which may result in inaccurate audit assessments.
Liontrust recognises a further risk posed by the payment of excessive
non-auditing fees to the auditor (33%+ of the audit fee). However,
this will be considered on a holistic basis, contextual to each
company/auditor relationship. Liontrust voted at 671 company
meetings in 2021 relating to auditors. A vote in favour of the
auditors was cast at 467 of these meetings, or 69.60% of the time.
Therefore, 204 meetings, or 30.40% of the time, Liontrust instructed
an against vote, or abstained on, or recorded a ‘do not vote’
regarding a vote on an auditor. Votes regarding the remuneration
of auditors have not been included in these statistics.