Active ownership: the G in ESG

LGIM’s 2022 active ownership report explains the actions we took last year to create sustainable value for our clients. Below is a brief summary of the ‘governance’ section of the document.

Investor rights: one share, one vote

In 2022 we reinforced our commitment to ‘one share, one vote’. We believe voting is an essential right for shareholders, to promote market efficiency and to hold company boards accountable. However, the prevalence of unequal share class structures, also called ‘dual class’ shares (i.e. two or more types of share, with different voting rights) continues to impede shareholders’ rights.

In our recent blog post, we provided more details on the history of dual-class share structures, the arguments for and against, and the evidence of what effect they can have on a company and its performance.

We have long advocated for equal voting rights. And from 2023, we will be voting against the re-election of the board chair at US-incorporated companies with dual-class structures, where:

1. The company does not have a plan to set a time limit on a dual-class structure, and
2. Shareholders have not been given the opportunity to regularly vote on its continuation

Directors’ pay: our red lines

LGIM’s guidelines on director pay and our separate Principles of Executive Pay documents for the UK and US markets are detailed and provide a clear picture of

our minimum expectations on pay practices globally. Our votes are based on a number of red lines and an overarching consideration of fair treatment of stakeholders over the period.

Over the course of 2022, we voted against 127 (21%) of the 604 remuneration reports proposed at UK companies, a slight reduction in negative votes compared to 2021 (23.1%). We also opposed the election of 82 remuneration committee members, due to our persistent concerns over their pay practices.¹

Globally, we opposed 56% of all pay-related proposals due to the companies not meeting our minimum standards for fair and appropriate long-term performance-based pay.

1. LGIM internal vote data, 2022