Governance

How we've worked with companies to improve their governance and mitigate risks.

Contents

Select the specific topics below to learn more about our work on addressing governance issues with the companies we invest your pension in.

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Video: How we influence companies' corporate governance

Watch this short video to understand more about our approach to influencing the companies we invest in on governance issues.

Advocating for measures to help us hold company boards to account

Governance - working with companies to address risks around their practices and processes.

  • What was the issue?

    Being invested in companies gives us certain rights. One of these rights includes the right to vote on different matters at the Annual General Meetings (AGMs) of the companies it invests in. This right is important as a vote is a public expression of either approval or disapproval of a company’s behaviour on certain issues.

    We invest in many different companies world-wide, including in America.

    Unfortunately, many American companies unfairly skew the voting system. They do this by giving insiders, such as the company founder and their family, more than one vote per share. Often they get 10, 20 or 50 votes per share, while independent investors like Railpen get one vote per share – or sometimes no voting rights at all. In the investment world, these are called ‘unequal voting rights’.

    In 2023, the UK financial services regulator (the Financial Conduct Authority (FCA)) proposed changes to further allow unequal voting rights for UK companies.

    Railpen believed this would roll back a fundamental investor protection and lead to worse outcomes for members. We knew that most other investors agreed with us. 

  • What did we need to do?

    We needed and wanted to respond to the FCA’s proposals. However, the time available to do this was very short and any response had to happen at a time when most investors are busy voting at thousands of company AGMs.

  • What approach did we take?

    We tapped into evidence we had collected as part of the work of a dedicated coalition Railpen had set up in 2022 – the Investor Coalition for Investor Coalition for Equal Votes (ICEV). Votes (ICEV).

    The Coalition is dedicated to pushing back against unequal voting rights, which meant we already had an useful additional level of expertise and a lot of evidence to show that the proposed changes would be harmful to outcomes for members.

    Railpen helped draft a response from dozens of others in the industry, and supported others to produce their own responses.

    Railpen also sent a public letter outlining their concerns and those of other investors which was covered in the press, and organised both individual and group meetings with senior government and regulatory officials.

  • What was the outcome?

    Although some of Railpen’s minor suggested policy improvements will likely be taken forward, the FCA decided to go ahead and allow unequal voting rights at UK companies.

    This decision is damaging our ability to influence companies in the interests of members so we will work to find other ways to bring the industry together in a longer-term campaign.  

Olympus Corporation – improvements in governance

Governance - working with companies to address risks around their practices and processes.

  • What was the issue?

    Railpen has a process to identify companies whose governance and behaviour are a concern to us. This is known as Governance and Conduct Zero-Weight (Gov Z-W).

    Our process picks out companies where there are ‘red flags’ around governance – the system of rules, practices and processes by which a company is controlled. These are risks that we think might end up becoming a reality in the future.

    The process identifies companies that we want to talk to about their conduct. It can also lead to us excluding companies. This happened with Olympus Corporation, a Japanese optics and medical devices manufacturer, in 2019. We did this because of worries about health and safety practices, as well as governance.

  • What did we need to do?

    Olympus remained on our exclusion list in 2020 as we did not feel it had made sufficient progress on our priority issues.

     In 2022, we got in touch with Olympus again to learn about the progress it had made in this area.

  • What approach did we take?

    We learned from our analysis that there had been improvements since 2019. The company Board had greater independence – including an independent Chair – and there had been a move to a three-committee structure. 

    We were pleased to hear about plans to further strengthen not only board governance, but also governance of the supply chain, including plans to meet external accreditation standards.

    We felt that senior executives now had a clear understanding of the problems. They talked honestly about how things had gone wrong in the past and how they were going to fix these issues.

  • What was the outcome?

    Although we hadn’t felt ready to reinstate Olympus after our talks in 2020, it scored well in both our 2022 discussions and our analysis of its progress. We therefore decided to remove Olympus from our exclusions list and informed the company of our decision, as well as explaining our thinking behind it.

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