Spotlight on the revised PLSA voting guidelines

January of this year saw changes to the Pensions and Lifetime Savings Association (PLSA) voting guidelines, which seek to promote the long-term success of the companies in which members invest and ensure management maintain accountability to shareholders.

The guidelines will allow shareholders a better understanding of the impact they have on a company and drive business actions that are sustainable and conducive to long-term value creation. Companies that ignore a broad shareholder consensus, especially when it comes to environmental, social and government (ESG) matters, are likely to find themselves in deep water.

How to achieve best practice

ESG

A company that omits a description of how climate change and other ESG factors are likely to impact the business over the long term is likely to find increasingly high levels of investor dissatisfaction. It is important that businesses express how they are addressing these factors in long-term decision making. Boards must describe the expertise in place on how the company is gearing itself to meet challenges of the future and how the business model will be altered in the face of risks such as climate change.

Stakeholder relationships

Investors are becoming increasingly aware of the long-term value that is associated with pursuing broader stakeholder value. Company leaderships must fully explain how they engage with stakeholder groups and detail how they implement what has been learned from such engagement into decision making.

Succession planning

Where there appears to be insufficient succession planning in place, it implies poor leadership and risk management. Investors may choose to reflect dissent by voting against the re-election of directors. The annual report is a key resource to reflect how management have put plans in place to facilitate seamless changes in management and ensure strategic continuity.

Time management

The annual report must communicate how the leadership team spends its time throughout the year. Where investors feel members of the Board are not adequately committing to their role or are ‘overboarded’, it may lead to votes of dissent. Explaining how a board spends its time throughout the year and how these actions contribute to strategic objectives will reflect that the leadership team is competent and committed.

Remuneration

Though levels of shareholder dissent have fallen since the financial crisis, there remain significant levels of opposition concerning executive remuneration. Companies should use the annual report to communicate how remuneration contributes to long-term value creation, facilitates strategic objectives and is dependent on effective business performance.

The Luminous view

The changes to the PLSA UK voting guidelines will lead to investors having a better understanding of how they can effect change within the company, which will provide broader benefit and contribute significantly to long-term value creation.

Company leaderships must ensure they are aware of how these guidelines may impact their business so they are able to provide the engagement that minimises the likelihood of investor dissatisfaction. Making an active attempt to clarify key aspects of the voting guidance will reduce dissent and will allow clarification of how the business ensures strong leadership, robust strategy and effective ESG policy on an internal basis.

And if you’d like to find out how you can report in a way that fosters shareholder relations, simply contact [email protected] for some guidance and support.

 

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Connor Lundy

As Investor Insight Executive, Connor works closely with Stephen Butler, Luminous' Director of Stakeholder Engagement to research the latest best practice regulations and trends across narrative reporting, digital, investor events, sustainability and integrated reporting.