Engagement policy

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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.

Principle 1

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.

Principle 2

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.

Principle 3

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.

Principle 4

Institutional investors should establish clear guidelines on when and how they will escalate their stewardship activities

The aim of our investment process is to understand a business as comprehensively as possible. We are, however, ‘outsiders’ and we acknowledge that we will never know as much about a business as the ‘insiders’, namely the managers of that business. As a result, in the majority of instances, where we are convinced that an appropriate alignment exists between owners and managers, we will be supportive of the management team’s long-term strategy.

Our stewardship activities will be escalated if we are concerned about misalignment between owners and managers or where we believe an alternative strategy may result in the creation of greater long-term shareholder value. This escalation will normally involve some or all of the following steps:

  • an increased frequency of meetings with the executive management team
  • formal letters to the executive management team and board expressing our concerns
  • meetings with non-executives such as chairman and senior independent director
  • discussions with the company’s corporate advisers
  • proposing changes to board membership and / or the executive management team
  • seeking support for our proposals from other institutional investors
  • requesting an Emergency General Meeting and voting against some or all board proposals at General Meetings

The topics and issues on which we are likely to intervene, and have previously intervened, include executive and non-executive board positions and appointments, corporate strategy, intended merger & acquisition activity and asset allocation. We will intervene where we believe our actions will be in the best interests of shareholders, irrespective of proportionality.

Assessing the outcomes and effectiveness is not simple, as it can take several years for the effect of action or inaction to fully reveal itself in terms of operational and share price performance. Nevertheless, we assess effectiveness as part of our ongoing monitoring of investee companies.

Ultimately, our approach to escalation will depend on specific circumstances but we prefer to undertake our corporate governance duties behind closed doors. However, if private discussions fail to deliver the outcomes we are seeking, we are prepared to make our concerns public, through our website and traditional and social media channels.

Principle 5

Institutional investors should be willing to act collectively with other investors where appropriate

We are happy to engage with other investors, where appropriate, to achieve our objectives. This would normally occur if acting alone is not achieving the desired outcomes and / or we have become aware that other institutional investors have similar concerns to our own. Situations that have historically required such collective engagement include the composition of executive and non-executive management teams, capital allocation and long-term business strategy.

We are not associated with any formal or informal groups that would facilitate such engagement, but our Investment team has extensive relationships across the wider investment industry which can facilitate engagement when it becomes required on a case-by-case basis.

Institutional investors wishing to engage with us in this regard should, in this first instance, contact Woodford’s Head of Compliance. Before engaging, potential conflicts of interest will be assessed, and all engagements will have due regard to the applicable rules on acting in concert.

Principle 6

Institutional investors should have a clear policy on voting and disclosure of voting activity

We consider the right to vote as an effective tool for promoting good corporate governance and representing the collective interests of our clients. We aim to use our right to vote on behalf of our investors, in all appropriate situations.

The Woodford Investment team is responsible for all elections and a full record of that election is maintained electronically and is available on request. The proxy voting process in managed via ProxyEdge, a platform provided by Broadridge. The system manages the process of meeting notifications, voting, tracking, mailing, reporting and record maintenance.

Woodford has retained the services of IVIS, a leading provider of corporate governance research. IVIS outlines a number of best practice guidelines that cover corporate governance, share capital management and fixed income. We consider the advice and recommendations made by IVIS in its company reports in reaching a proxy voting decision. Our default position is to vote with management but we reserve the right to vote against proposals where appropriate. We notify the company in advance if we intend to vote against its proposals.

We publish historic voting records in detail, every quarter, one month in arrears. However, we do retain the right, in some circumstances, to withhold some elements of our disclosure, due to reasons of confidentiality or market sensitivity.

Woodford does not engage in stock lending.

Principle 7

Institutional investors should report periodically on their stewardship and voting activities

We believe it is appropriate to conduct company engagement activities privately but in certain circumstances, we will make public statements, particularly where we have unresolved concerns about a company management team or its strategy. Where this is the case, details will be available on our website.

Annually we will report on the implementation of our engagement policy which includes an overview of voting, an explanation of the most significant votes and information on the use of proxy voting advisors.

In addition, we publish historic voting records in detail, every quarter, one month in arrears. However, we do retain the right, in some circumstances, to withhold some elements of our disclosure, due to reasons of confidentiality or market sensitivity.

Our stewardship framework is subject to independent annual review, and the final report is available to clients upon request.

1 Directive (EC) 2007/36 of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies amended by Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 as regards the encouragement of long-term shareholder engagement

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address 9400 Garsington Road, Oxford OX4 2HN.

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

© 2019 Woodford Investment Management Ltd.
All rights reserved.

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