At Woodford, we passionately believe that effective stewardship and engagement benefits companies, investors and the economy as a whole.
Corporate governance is a vital part of our investment process and responsibility for it sits with the Investment team. For us, corporate governance is about ensuring that the executive and board of a company are aligned with us, as shareholders, and that the course they have set for the business will create long-term shareholder value.
The purpose of this page is to outline our engagement policy, which fully complies with the principles of the UK Stewardship Code and Shareholders Rights Directive II1.
Institutional investors should publicly disclose their policy on how they will discharge their stewardship and engagement responsibilities
We are very active in our engagement with company management teams – this is a crucial aspect of our investment approach. We take long-term stake in businesses on behalf of our investors and take very seriously our duty to represent our investors’ best interests in our discussions with management teams.
We will engage on a wide range of issues but, primarily, these will revolve around a company’s long-term strategy and business development plans.
Ultimately, we like to see a clear alignment between a company and its shareholders in the pursuit of long-term shareholder value. If we fear that this alignment does not exist, or that an alternative strategy could result in more shareholder value, we engage with management to try to influence change.
We tend to favour voice over exit. We don’t run for the hills at the first sign of trouble. We are prepared to roll our sleeves up, discuss the situation with management and do what we can to help solve the problems. We see it as ‘our problem’, rather than ‘their problem’. We believe successful investment requires a partnership between managers and owners. We utilise the services of IVIS (Institutional Voting Information System) to help identify potential governance issues but, ultimately, responsibility for our corporate governance duties rests with the investment team.
Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship, which should be publicly disclosed
We believe strongly in transparency and openness. We have an effective and robust conflicts of interest policy to protect the interests of our clients. The policy explains how we aim to ensure that all reasonable steps are taken to prevent or manage conflicts of interest and prevent these from adversely affecting our clients. As a principle, we should not provide services in a manner that will advance one client’s interests unfairly over another’s.
The conflicts of interest policy is designed to identify potential or actual conflicts between Woodford, our clients, our investee companies and our Employees.
In the context of our stewardship responsibilities, conflicts that may arise include investing in a business that provides a product or service to Woodford, or investing in a business that we believe invests in the Woodford fund range. We take all reasonable steps to identify any potential conflict of interest that may arise prior to making the decision to invest in a business. If a potential conflict is identified, it is escalated to compliance and, if appropriate, to senior management. Once identified, conflicts are prevented or managed through internal controls and monitoring to ensure that clients’ interests are not adversely affected.
If these methods of preventing or managing a conflict are considered inadequate, the activity to which the conflict of interest relates may need to be terminated, avoided or disclosed to the client.
Woodford’s conflicts of interest policy, detailing the type conflicts we have identified and how these are managed is available on request. All conflicts of interest are documented in the conflict of interest register and are reviewed on an ongoing basis.
Institutional investors should monitor their investee companies
Monitoring investee companies is of vital importance to our investment approach. It is a continuous process, with all portfolios reviewed daily to ensure appropriateness, consistency and adherence to mandate and applicable regulations. Individual holdings are assessed and monitored daily for news flow, through conversations with the wider investment community and, where necessary, directly with the company.
We meet with the management teams of investee companies regularly – typically at least twice a year after the release of financial results but often more frequently where the need arises. We will engage on a wide range of issues, these include:
- business strategy and its execution;
- risk management;
- corporate governance for example election of independent directors; executive remuneration, board composition;
- performance and capital structure
Primarily, the focus is around a company’s long-term strategy and business development plans. The aim of these meetings is to learn more about the company and we also seek to gain confidence that an alignment exists between the company and its shareholders. If we are unable to garner this confidence and have engaged with the company to influence change, there will tend to be an increased frequency of meetings. We are also prepared to escalate our engagement efforts where necessary, as outlined in principle 4.
The Corporate Governance Code provides a useful framework of principles for guiding effective board governance practices. We are, however, comfortable with the idea of our investee companies departing from those guidelines in certain circumstances, if we understand their explanation for doing so and do not disagree that it is in the collective interests of our clients.
Sometimes, in the course of our interactions with individual companies, we may come to possess insider information which prohibits us from trading in the shares of that company until that information becomes public. The Woodford Compliance team maintains a ‘stop list’ which ensures we do not deal in stocks where we have any information that could make dealing improper, even if the actual dealer was not aware of the information. Any employee may request a particular stock to be added to the stop list and should provide all relevant information to Compliance. Further details of our approach to insider information is contained in Woodford’s market abuse and insider information policy, which is available from the Head of Compliance on request.