Horiba Ltd.
Engagement issue
Board-level gender diversity
Engagement Objective
Horiba, like many Japanese businesses, has a management team and board of directors that is dominated by men. We engaged with the company in 2019 to encourage the company to accelerate gender diversity efforts at the company.
Scope and process
The engagement was part of a broader initiative to improve gender diversity at board level across several companies in the WHEB portfolio. During 2019, we voted against Directors on company boards where women made up less than 25% of Directors.
We also wrote to Chairmen at twelve companies, including Horiba. We asked for companies to clarify their approach to gender diversity and set themselves diversity targets for both Board Directors and Senior Executives.
Outcome: Partially successful
Female representation at Horiba remains lower than we would like, with 87% of Board directors being male. Nonetheless, the company is taking proactive steps to foster more diversity through the company. The company has set itself a target to have 20% of managerial posts filled by women by the end of 2020.
TPI Composites
Engagement issue
ESG Disclosure
Engagement Objective
To encourage TPI Composites to publish a sustainability report covering key ESG issues facing the business
Scope and process
As a young and relatively small business, TPI Composites had never published data on the environmental and health and safety issues associated with its operations. As part of our regular dialogue with the company, we encouraged the company to produce a sustainability report when we first invested in the company in 2017.
In 2018, the company produced some initial health and safety data and committed to producing a fuller report in 2019. It also announced that it was recruiting additional resources to coordinate this work across the business.
In 2020, we were asked to review a late draft of a sustainability report and made several suggestions to the proposed content and structure.
Outcome: Successful
TPI Composites published their first sustainability report in March 2020. The contains detailed performance data and improvement objectives on key issues.
Premier Inc.
Engagement issue
Governance and sustainability
Engagement Objective
To ensure sustainability initiatives have senior leadership involvement and oversight.
Scope and process
Premier Inc. is held in our Health theme. The company has been a holding in WHEB’s portfolios since 2017. At the 2019 Annual General Meeting we voted against the reappointment of a member of the company’s Governance Committee on the basis that the company does not have a designated member responsible for sustainability across the company.
We wrote to the company setting out the above reasons for voting against the Board Director. The company responded to say that they would be appointing one of their independent Directors to oversee sustainability initiatives at the company.
Outcome: Successful
The company has agreed to appoint one of their independent Directors to oversee sustainability initiatives at the company.
Johnson Controls
Engagement issue
CEO Remuneration and Board Independence
Engagement Objective
To convince the Board to put in place stricter performance requirements on CEO remuneration and to reduce the number of Board Directorships some Johnson Controls Directors have.
Scope and process
At the company’s 2018 Annual General Meeting, we voted against the reappointment of one of the company’s Directors on the basis that he holds too many Board-level Directorships to be able to devote adequate attention to his responsibilities at Johnson Controls. We also voted against the CEO’s remuneration package including specifically the severance package.
Following the vote, we wrote to the Lead Director at the company to set out our reasons for voting as we did. We also expressed our disappointment with the new executive incentive structure which in our view includes undemanding targets and too short a performance term.
Outcome: Successful
The company’s Lead Director responded to our letter to confirm that the CEO had voluntarily terminated the severance agreement and that the Board Director had resigned one of his other directorships. The letter also claimed that the Compensation Committee has put in place ‘a more rigorous short-term incentive plan’ for executive officers.
MSA Safety
Engagement issue
Governance – Independent Board Directors
Engagement Objective
To encourage the Board to increase the proportion of independent non-executive Directors on the Board to greater than 50% from the current 50%.
Scope and process
MSA Safety Inc. currently has a staggered Board where shareholders are only able to vote for a proportion of the Directors at each Annual General Meeting (AGM). In 2018, one Director, John Ryan III was up for re-election. The company (and the New York Stock Exchange listing requirements) considers Mr Ryan to be independent as he retired from being the company’s CEO over ten years ago. WHEB’s view is that Mr. Ryan is not independent on the basis that he has served on the company’s Board for 37 years. Mr Ryan, along with four other Board Directors, has served for more than ten years meaning that only 50% of Board Directors are independent. Furthermore, Mr. Ryan also serves as a Member of both the Nominations and Governance Committees meaning that these two committees are also only 50% independent. Consequently, we voted against his reappointment at the company’s AGM.
We wrote to the company explaining why we voted against Mr. Ryan and they responded to say that as Mr. Ryan is considered independent by the NYSE and by the company, he would remain on the Board.
Outcome: Partially Successful
As the company disagrees with our definition of independence, Mr Ryan remains a Board Director at the company. We will continue to encourage the company to adopt a stricter interpretation of independence and work to have a Board that is more than 50% independent according to this definition.
Smurfit Kappa
Engagement issue
WHEB believes that companies with diverse Boards are better equipped to govern effectively. We look for companies to have a minimum gender representation of at least 25% of Board Directors.
Engagement Objective
Smurfit Kappa has been a laggard within the UK and Ireland when it comes to gender diversity at Board and Executive committee level. Our objective has been to convince the Board to increase female representation on the Board to at least 25%.
Scope and process
We have voted against the reappointment of the Chairperson of the Nomination Committee for the past two years. On each occasion we have also written to the company to explain that our reason for voting against his reappointment is because of the poor gender diversity on the Board.
The company has not responded to either of our letters but we had the opportunity to raise the issue in person with the company’s CEO at a meeting with the CEO and IR Director.
Outcome: Successful
The company appointed a second female Director at their 2018 Annual General Meeting and announced a third female Director at the beginning of January 2019. Also at the end of October 2018, the company announced the retirement of the Chairman meaning that the Board has gone from 17% to 25% female. This change is due to be confirmed at the Annual General Meeting on 3rd May 2019.
Lenzing
Engagement issue
Local pollution around company’s factory in West Java.
Engagement Objective
The engagement objective was to encourage the company to respond to the issues raised in the report and to set out a clear road-map for resolving them. We were also keen to see the company use their response to underline their commitment to sustainability in their operations.
Scope and process
We initially spoke to the authors of the report to ensure we had a full understanding of the concerns being directed at Lenzing.
We then engaged directly with the company through email correspondence initially with the Head of Investor Relations (IR) and subsequently spoke with the Chairman, the Head of IR and the Head of Corporate Sustainability on several occasions. Various company documents and correspondence were also shared with us as part of the engagement process.
Outcome: Successful
The company was very quick to respond to the allegations raised in the report and acknowledged that there had been some issues at the facility in West Java which could be improved. They spoke directly to the authors of the report as well as to their customers and committed to producing a road-map to ensure that all their facilities meet the highest standards in the industry.
An internal team led by the company’s Chief Commercial Officer and Chief Technology Officer was appointed to develop the road-map and was supported by an independent consultant.
This road-map was agreed in September and shared with us in October. The focus of the programme is on implementing a ‘closed loop process’ for viscose manufacturing, delivering a reduction in local air and water emissions, further developing responsible raw material sourcing and launching initiatives for community well-being.
The company has begun to implement the road-map including through reductions in SO2 emissions and also through action to ensure all suppliers and agents are in compliance with their policies.
Orpea
Engagement issue
Board Director independence
Engagement Objective
To ensure that the Board is populated with a majority of independent Board Directors.
Scope and process
As a point of policy, when we vote against or abstain on a vote at a company’s general meeting, we always write to explain our reasons. We have written to Orpea many times over the years to express our views on the importance of independent Directors and have met regularly with company management to discuss these issues.
Outcome: Successful
Over the years that Orpea has been in the WHEB investment strategy, the share of independent Directors has risen from 25% to 64%. In 2017, one Director who we had argued was not independent because of a conflict of interest (he also acted as a lawyer for the company), agreed not to stand for re-election ‘due to [WHEB’s] comments and in line with the highest possible standards of governance’.