Hermes Pensions Management, the investment firm owned by the BT pension scheme, has unveiled a revolutionary new corporate governance charter – ‘The Hermes Principles’, which it believes will revitalise the interests of institutional investors in investee companies.
The 10 principles (see page 51) drawn up in the document, -one of the first such explicit statements of investor engagement in companies by an asset manager - aim to clarify shareholder expectations regarding company management and its effect on long-term performance.
Included in the charter are statements on improving communication, financial accountability, strategic clarity and social, ethical and environmental concerns, that Hermes believes will provide an ‘agenda for discussion’ between investors and company boards – a relationship the manager feels has become stymied in recent years.
The principles build on the existing investment policy of Hermes’ Focus fund range, which aims to extract value through corporate governance improvements in otherwise sound companies.
David Pitt-Watson, managing director of the Hermes UK Focus Fund: “Previously there was an implicit assumption that companies would deliver shareholder value, but things have not always gone that way.
“The ultimate goal of a company is to create wealth for its shareholders. This in turn suggests a number of actions that it is reasonable for shareholders to expect.”
The principles, which will initially be adopted in the UK, will eventually be rolled out globally across the fund manager’s entire £40bn investment portfolio.
Pitt-Watson notes, however, that Hermes is not producing a check-list for investment in companies, nor seeking to micro-manage them.
“We’re not ticking boxes here. We are being pragmatic and we realise we have to be this way. We’re not there to punish boards, we are there to seek shareholder value, which will probably include the board themselves. This is an agenda for discussion.
“However, if companies are not taking some of the principles here seriously then there is a likelihood that they might not be taking a lot of other issues seriously.”
The report will be sent to the boards of all UK listed companies and according to Hermes, initial soundings suggest that the principles will be largely welcomed.