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Good governance: international principles for engagement with impact

ICGN principles as starting point for corporate governance activities
The principles of the International Corporate Governance Network (ICGN) are the starting point for Robeco's voting policy and offer guidelines for many engagement activities. The ICGN principles are a set international standards for good corporate governance practives. The principles can be applied by companies all over the world. In 2013 Robeco launched a broad engagement theme with the goal to promote compliance with the ICGN among listed companies, under the term 'Good governance' After two years of engagement, we look back on several dialogues and developments in the field of corporate governance.

Broad range of objectives
The various principles of the ICGN cover almost all relevant aspects of corporate governance. The principles offer guidelines for the remuneration policy of listed companies, but also for the composition of supervisory and management boards. Other topics covered by the ICGN principles are shareholder rights, corporate culture and ethics, risk management, auditing and transparency. The theme has seven different objectives; one per relevant principle. For every company in the engagement theme we determined on which principles improvement is most desirable. The focus of the dialogue is on these specific principles.

Cooperation with other institutional investors
In order to improve the corporate governance of companies, we frequently join forces with other institutional investors. For example, in mid-2013 Robeco worked with others in a dialogue with KPN when the Dutch telecom company was about to be taken over by the Mexican Telecom company America Movil. A potential majority stake for America Movil gave rise to concerns regarding the rights of KPN's minority shareholders. Implementation of specific, clearly defined shareholder rights can offer protection in such a situation. The aim of the dialogue was amend the reuired shareholder approval process for important – strategic and financial – decisions so as not to disadvantage minority shareholders.

Engagement at shareholders' meetings
An effective point in time to enter into a dialogue with a company on corporate governance is prior to the Annual General Meeting of Shareholders (AGM). At such meetings shareholder are asked to approve matters such as the appointment of management and supervisory board members. Amendments to the remuneration policy for board members are also aften presented to shareholders. The ICGN principles offer a helpful framework for these topics. A company’s remuneration policy for executive board members should specify the link between performance and remuneration in an appropriate way. Prior to and during the AGM of TNT Express, Robeco requested that the new remuneration policy should match the interests of investors more effectively. In this process we successfully requested a higher level of company stock ownership for execitive board members, to ensure that their interests were in line with those of the company. We also urgently requested that board members should be granted no variable remuneration in the event of below average performance.

Stakeholder protection
One of the ICGN principles focuses on the objectivity and independence of a company's management board. It is important that the management board is sufficiently objective and independent to be able to effectively serve the interests of all relevant stakeholders. One example of our engagements that focus on board independence is the dialogue with Brazilian petroleum giant Petrobras. In the case of this company, the government has the decicive influence on corporate policy, but doesn’t provide the majority of capital. Because Robeco is of the opinion that the company is being run primarily with the interests of the Brazilian government and not necessarily in the best interests of the other investors, we have started an engagement process. Together with other institutional investors, we nominated an independent member to the board, with the aim of countering the Brazilian government’s dominance in the running of Petrobras. In March 2014 our proposed candidate was elected by a majority to the company's board.

ICGN principles are not static
Although universal by nature, the interpretation of the ICGN principles is not static. Constructive dialogue with companies on the application of the ICGN principles ensures that in time best practice becomes common practice. This dynamic is something we incorporate in our dialogue. The engagement theme offers a general framework for many of our corporate governance activities, also in the future. The principles of the International Corporate Governance Network are also subject to change. In 2014 the principles were revised to become Global Governance Principles. In order to comply with the adjusted principles, in 2015 we will add two new principles to the objectives; one focused on the composition and nomination of the management board and one focused on rights at AGMs.
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