GLOBAL - Hermes Investment Management is the principal fund manager for the BT Pension Scheme, the UK's largest scheme and also manages portfolios for the Post Office Pension Plan and a number of other major corporate and public pension schemes.
Colin Melville, director of corporate governance at the company, said: “Hermes' corporate governance programme is founded on a fundamental belief that companies with interested and involved shareholders are more likely to achieve superior long-term financial performance than those without.
“Tied closely with this is the belief that a company run in the long-term interests of its shareholders will need to manage effectively relationships with its employees, suppliers and customers, to behave ethically and to have regard for the environment and society as a whole.”
The main approach taken across funds such as BT is one of active engagement coupled with the considered use of client voting rights. In this respect it deals with matters of corporate governance and corporate social responsibility as part of the same process.
An example of its work on social, environmental and ethical issues was at Premier Oil.
Melville said: “This was a company with strategic, governance and ethical problems. On the governance side, it had two 25% shareholders, Petronas and Amerada Hess, which as well as effectively insulating the company from takeover also appointed two board members each.
“Other non-executive directors failed our criteria for independence for other reasons and Hermes had been encouraging board change for a number of years.
In addition, Premier faced regular campaigns from pressure groups concerned over the company's status as the second largest foreign investor in Myanmar (Burma), where a military junta had refused to accept the results of a democratic election.
“While Premier was involved in many positive schemes in Myanmar, it was not clear to us as investor representatives that the company was fully managing its reputation and other risks which its involvement in the country implied.”
Against this background the share price had dramatically underperformed for several years with Hermes becoming more actively involved in 2000, upping the level of its discussions and engagement with the company, other investors (both in the UK and overseas) and with the pressure groups campaigning about the situation in Burma.
Melville said: ”We helped reduce the public campaigning spotlight on the company, giving it more space to find a solution to its problems, and we believe that our interventions helped the company reach a resolution with its 25% shareholders more rapidly than might otherwise have been the case.”
In September 2002 Premier Oil announced a deal paving the way for the exit of the major shareholders, together with assets held in Myanmar. The deal led to the departure of those non-executives directors representing the major shareholders, completing a board transformation to one which seemed better able to take the interests of all shareholders into account.
Melville believes that the deal also solved the company's strategic problems by removing all its mature production assets, freeing it to compete as a small exploration company, and allowing it to exploit opportunities which the major oil companies might miss.
He said:” Unsurprisingly, the news of this deal led to a substantial share price increase.”
So confident is Hermes that its policy on corporate governance and corporate social responsibility contributes to the value of its clients’ investments that it is increasing its involvement in the area.
Melville said: “We plan to extend our proce
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