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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 II 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 key aspect of our investment approach. 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.

Principle 1

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 our investment team. Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship, which should be publicly disclosed.

We have a robust conflicts of interest policy to protect the interests of our clients. The policy is designed to identify potential or actual conflicts between Woodford, our clients, our investee companies and our employees. 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. 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.

Active Ownership – everyone is talking about it

If a potential conflict is identified, it is escalated to compliance and, if appropriate, to senior management. 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. All conflicts of interest are documented in the conflict of interest register and are reviewed on an ongoing basis. 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 more frequently where the need arises.

We engage on a wide range of issues, including:. 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 intervene where we believe our actions are 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 depends on the specific circumstances and we prefer to undertake our corporate governance duties privately.

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.

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. 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:. 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. 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 facilitate such engagement but our investment team has extensive relationships across the wider investment industry, which can facilitate engagement when required.

Before engaging, potential conflicts of interest will be assessed and all engagements will have due regard to the applicable rules on acting in concert. 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 voting activity and a full record is maintained electronically and available on request. The proxy voting process is 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 to provide 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 we deem it appropriate. We notify the company in advance if we intend to vote against its proposals.

We do retain the right, in some circumstances, to withhold elements of our disclosure, due to reasons of confidentiality or market sensitivity.

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Shareholders Are Getting Serious About Sustainability

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 are available on our website.

We report annually on the implementation of our engagement policy, including providing an overview of voting, an explanation of the most significant votes and information on the use of proxy voting advisors. Our stewardship framework is subject to independent annual review and the final report is available on request.

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How Activist Investing Is Reshaping the Boardroom: A New Dawn for Corporate Governance?

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The heterogeneity of investors and their motivations mean they may respond in different ways to these pressures, whether through voice or exit. Having established a relatively clear route, path a , from the market and institutional context to legal ownership to exit or activism, we turn now to the more complex path b , which leads through psychological ownership to different investor behavior.

The policy moves outlined above seek to alter the behavior of investors in the direction of path b using incentives and invective. To understand what may be involved in a more engaged approach to ownership, the next section examines stewardship theory, beginning with the cognitive and affective mechanisms that underlay stewardship behavior Hernandez, At this point, the model broadens beyond agency theory and assumptions of shareholder activism to offer a very different potential for institutional investor behavior. In portfolio theory and practitioner accounts cf.

Bogle, ; Hutchinson et al. Stewards have an emotional tie to the beneficiaries of their actions as well as a deliberative one. Stewards show a sense of commitment, again for the long term. Affective mechanisms build connections and emotional attachment to the organization. Structural factors such as control processes and reward systems influence development of cognitive and affective mechanisms. This suggests the interaction and balance of cognitive and affective is dependent on the market and institutional context, the incentives and controls they create, and on the business policy choices and processes of the investors.

In our model, the dotted line from legal to psychological ownership indicates the potential for investors to evolve in their behavior as they develop some of the cognition and attitudes associated with psychological ownership. This can occur as institutional investors adapt their investment principles, their portfolios, and their practices of voice to mix principles of shareholder value with principles of responsible investment.

In Hernandez and Pierce et al.

Best Practices for Shareholder Activism

Both arise from control systems that foster collaboration and personal responsibility and reward systems providing intrinsic motivations. In the case of investment institutions, and with reference to the model, their legal ownership is not disputed; what differentiates activism along path a from the ongoing relationship of path b is that investors possess psychological as well as legal ownership. Exploring difference between paths a and b as reflected in processes and behavior of investors is the subject of the next part of the model and section of the paper.

As the paths are defined by processes not social and financial ideologies per se , either path could be taken by a wide range of investment organizations. Within the distinction between paths a and b , different conceptual and empirical relationships between loyalty, exit, and voice become more apparent.

Hirschman's discussion of the framework in a corporate context implies that the more liquid the market in shares, the more likely exit will be preferred to voice. Voice requires effort, can be costly, and may require coordination with others. But Admati and Pfleiderer show how exit can be a form a voice and have disciplinary effects on corporate management, especially when pay is tied to the share price.

Active ownership, in particular along path b , involves loyalty, which is positioned centrally in the model and with a permeable boundary to exit on the one hand and voice on the other.