Liontrust Sustainable Future Funds - Annual Review 2017 - Page 30



Engagement case studies
Re-appraising our view of the big social networks
Early in 2017, we assessed
Facebook for our Funds and
rated the company eligible for
investment. Following further
analysis, we concluded
this was a well-managed,
profitable company that
looked undervalued and
bought the stock for our
Global Funds in the first quarter
of 2017.
This stock was flagged as
controversial by our Advisory
Committee,
however,
which
recommended that we thought
more carefully about how to
assess large social network
companies
and
their
sustainability in light of a
number of shortcomings
in their business models.
We
met
with
Facebook
and
received a fairly
under whelming
response
about
our concerns. At the
Annual General Meeting in
June 2017, we supported a
number of resolutions proposed
by shareholders on the voting
rights of shares, lobbying, fake
news, gender pay and the need
for an independent Chair.
We then embarked on a number
of meetings with experts to help us
understand the issues that are particular
to these large social networks, how
30 Liontrust Sustainable Future Funds: Annual Review 2017
Gender diversity
to manage them and how we can judge whether the
companies are dealing with these potentially material
issues adequately.
Over the course of 2017, we met with individuals who
are experts in the following fields:
••Data privacy and how tightening regulation could
impact the large social network businesses.
••Content moderation and fake news and how easy it
is to effectively manage this.
••A media academic exploring how these relatively new
social networks fit in with existing media regulation.
These were interesting meetings and helped us to come
up with a framework to identify the main issues and how
to judge whether the company response was suitably
robust. In the meantime, several of the main issues we
had identified became very prominent in the news:
Content: Whether it can be moderated effectively in a
timely manner (this includes illegal and fake content).
Data privacy: Whether tightening regulation materially
undermines these businesses’ profit margins.
Access to these networks: Whether it is too easy for
vulnerable individuals to gain access and whether they
can do more to control addiction to social media.
In the second half of the year, we had another meeting
with Facebook and concluded that while the company
(and all of the main listed social networks) was taking
steps to address most of the issues we had identified,
the response was inadequate in light of the risk to its
profitability from tightening regulation. We updated
how we rated large social networks to be more stringent
and have subsequently downgraded and divested from
Facebook as a result.
Gender equality contributes to economic growth,
environmental stewardship and social inclusion and is
fundamental to ensuring equitable outcomes from the
UN’s Sustainable Development Goal (SDG) targets.
Reports from international organisations such as the World
Bank and the OECD, and other research institutions,
recognise the enormous potential to increase global
GDP growth by increasing female participation in the
workforce.
As such, this is an area of focus for a number of
intergovernmental organisations and countries are being
asked to present data and analysis to demonstrate
what is being done to address gender equality issues,
in addition to the more recent country level SDG
commitments.
Over the last several years, we have taken a closer look
at companies’ diversity programmes and discrimination
policies and also analysed board-level gender imbalances.
Where there is a lack of female representation on boards,
we have engaged with companies and used our voting
policy to encourage greater diversity.
We firmly believe companies that welcome cognitive
diversity through proper gender representation and a
wide range of experience and skills are better able to
prosper over the long term. In April 2017, we signed up
to the 30% Club Investor Group’s Statement of Intent. By
signing the statement, we have committed to assessing
the boards and senior management teams of investee
companies and we will use our ownership rights and
stewardship role to encourage companies to make
progress on gender diversity.
We are looking to achieve
a minimum of 30% women
on boards of large UK
companies and 30% senior
management level of FTSE
100 boards. We will be
encouraging companies
to disclose diversity
policies and greater
transparency regarding
the procedures used
to find new members of
the board and at senior
management level and how
the process ensures a diverse
pipeline for each.
We will continue to engage
on gender diversity into
2018 with a greater
focus on companies’
policies and recruitment
programmes for senior
management and
assessing investee
companies
gender pay gaps.
Liontrust Sustainable Future Funds: Annual Review 2017 31





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