Standard Life Investments

Principle 4 - Our guidelines for escalating engagement

Standard Life Investments will always use reasonable endeavours to enhance and improve shareholder value through constructive engagement with the companies in which it invests. Our engagement process is described in more detail in Principle 3.

The method of engagement will depend on the nature of the issue that has given rise to it. Where the matter concerns operational issues, financial control and the execution of strategy, meetings will generally be conducted with senior members of the executive team. Issues of stewardship that are related to long-term sustainability, board oversight and governance, corporate culture, risk appetite, environmental care, social responsibility, and relations with other stakeholders will be taken up with the most appropriate member(s) of a companies’ board or relevant teams.

In certain cases, we shall consider escalating our engagement on a particular issue. The tactical aspects of escalation are determined on a case-by-case basis. Consideration is likely to be given to engaging with the chairman, the senior independent director, the independent directors, the company’s advisers, and, if appropriate, the company’s regulators. At all stages of engagement escalation, we seek to ensure our views are represented by those who have appropriate seniority and experience. Where we feel it is appropriate to do so, we will also make our views known through public statements which may be at a company’s AGM.

As an example we engaged with a mining company over a period of years, particularly on the issues of board composition, remuneration policies and disclosures. In 2012, we attended the AGM and made a public statement with regard to our views on board composition. The following year, we met with the Senior Independent Director (SID) and followed up with a letter. Our concerns were partly addressed by the appointment of new directors in 2012 and 2013 but we continued our engagement in 2014 and 2015 through further meetings with the SID and other independent directors. Overall, remuneration policies and disclosures have been much improved but we believe there is still scope to improve board composition.

In 2015, we met with a leading support services company in order to discuss the challenges related to human rights in Qatar. Whilst the company emphasised that it implemented the same health, safety and human rights standards across the world, including Qatar, it recognised that the risks associated with human rights abuses did tend to lie within the supply chain/with contractors. After the company conducted a review it invested in improving accommodation conditions for its migrant workers and in monitoring contractors. The company conducted 200 audits on subcontractors, and, based on its findings, terminated relationship with 22 of them. In addition, the company implemented several changes to its operations, including paying for all the fees associated with the recruitment process.

We welcomed the efforts devoted to monitoring the subcontracting chain however we continue to encourage the company to provide clearer information on its policy around recruitment fees and how it is engaging with its workers on the ground.

We recognise and welcome the benefits that can accrue from collective engagement with other investors. Such collective engagement often forms part of engagement escalation. Our approach to collective engagement is described in Principle 5.

Where the issue is related to a matter upon which shareholders are entitled to vote, we shall vote in accordance with the best interests of our clients, and in those instances where we vote against management or abstain on the resolution, we will endeavour to engage with the company to explain the reasons for this decision. See Principle 6 for more information.

In exceptional circumstances where we are unable to resolve the issue, we shall exercise our discretion to table a motion at special or general meetings convened by the board or to call for a general meeting. We may also call on the board to make an undertaking at such meetings.

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