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Engagement
Process
Following investment, and occasionally
in advance of our having built our optimal holding, we
begin our engagement process. In the first instance we
contact the executive directors of the company and seek
a meeting at which we will introduce ourselves and outline
our proposals. Validating our strategy in this way and
through discussions with advisors and consultants to
the company and other major shareholders ensures that
we have identified the significant issues and the ones
which are the greatest hindrance to performance.
HFAM
and HFAME aim always to work constructively and co-operatively
with the boards of investee companies.
We do not seek to micro manage investee companies. We
are very clear that our role is to ensure that the
directors, the appointed representatives of the shareholders,
are acting in the long-term interests of the shareholders.
Our shareholder engagement programmes are intended to
assist boards in taking the tough decisions sometimes
required of them and to support them in implementing
those decisions once taken.
Where the response from the board to our proposals is
positive, our role is to monitor the implementation of
the proposal and support the board in that process. Where
the response is neutral we work closely with the board
to get a better understanding of their position and either
change our proposals in light of our new perspective
or convince the board of the merits of our proposal.
Where the response is negative we advance discussions
with the independent board members and shareholders and,
again, continue to work with the full board to convince
them of the need for change. If, over time, no progress
is made we may escalate our engagement to include a more
public campaign, such as calling an extraordinary general
meeting (EGM) of shareholders but this is seldom necessary.
We prefer always to keep our engagement discussions private
as this is more conducive to the positive and constructive
relationship we seek to have with the boards of investee
companies.
Once
an engagement has been successfully completed we hold
the stock in
our portfolio until the market appreciates
that the changes that have been made will result in a
return to strong performance on the part of the investee
company. When the stock price reaches the level that
we determined as being the potential true value we will
sell the holding*. Typically it takes two to three years
for an engagement programme to be successfully implemented
and the company’s stock repriced.
Footnote:
*The Hermes index-tracking portfolio will, of course,
continue to hold its stock in the company.
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