1. www.acga-asia.org Asian Corporate Governance Association (ACGA)
 "How to Enhance Effective Engagement -
Best Practices in Asia and Around the World"
Jamie Allen, Secretary General
Benjamin McCarron, Specialist Consultant
Securities and Exchange Commission, Thailand
Roundtable Discussion, Bangkok, July 17, 2018
ACGA Presentation
SEC, July 17, 2018 1

2. Agenda “Investor stewardship” – meaning and evolution
Best practices in engagement – corporate reporting
Best practices in engagement – investor dialogue
ACGA Presentation
SEC, July 17, 2018 2

3. 1. “Investor stewardship” – meaning
Institutional investors around the world (pension funds and investment managers) have been under increasing pressure to act as “stewards” of the capital they invest and of the assets/companies they invest in.
What does this mean in practice?
Investors need to look more closely at governance risk and take “environmental, social, and governance” (ESG) factors into account.
They need to be proactive and engage in a “purposeful dialogue” with company management/directors, not just vote shares.
The Global Financial Crisis (GFC) was the turning point.
Institutions in the UK, Europe and US criticised for asking for unsustainably high returns, especially from banks, and ignoring burgeoning risk in the system.
These basic concepts were not new….
ACGA Presentation
SEC, July 17, 2018 3

4. “Stewardship” before stewardship codes
1980s/1990s: State pension funds in the US began to develop policies and strategies on corporate governance. Voting shares, highlighting poor performers (CalPERS).
1990s/2000s: Pension funds and asset managers in the UK started to follow suit, with voting/CG policies and active voting.
2000s: Superannuation (pension) funds in Australia became actively involved in corporate governance issues and voting.
2005: National Pension Service in Korea revised its voting policies.
Mid-2000s: ACGA members actively voting in this region.
2010: Employees Provident Fund, Malaysia, published its internal CG Principles and Voting Guidelines.
Voting gradually led to engagement…
ACGA Presentation
SEC, July 17, 2018 4

5. How global investors have engaged
Comment
“Passive”
Only invest in companies, passive as shareholder
“Automatic voters”
Some shareholder responsibilities, institutions starting to vote,
but somewhat automatically
“Informed voters”
Investors who take a focussed and risk-based approach as shareholder
(e.g. voting on all or selected parts of their shareholdings)
“Light touch engagement”
Investors starting to exercise their rights and responsibilities as shareholders
(e.g. undertake or participate in letter campaigns
or conference calls with companies)
“Active owners”
(Stewards)
Act as owners of the company
(e.g. building long term relationship, engagement strategy, advising etc.)
Evolution over time
ACGA Presentation
SEC, July 17, 2018 5

6. Stewardship codes in Asia today
Market (order)
Date of Adoption
Comply or explain?
Lead investor(s)?
Australia
FSC Code 2017.
ACSI code 2018. -
Selected super funds, asset managers
China
Hong Kong (3rd)
March 2016
Voluntary
HKMA?
India (8th)
March 2017 (for insurers only)
Yes
LIC?
Indonesia
Japan (1st)
February 2014 (revised 2017)
GPIF
Korea (6th)
December 2016
NPS?
Malaysia (2nd)
June 2014
KWAP, EPF
Philippines
Singapore (5th)
November 2016
Taiwan (4th)
June 2016
BLF, Chunghwa Post
Thailand (7th)
February 2017
GPF
Source: ACGA research
ACGA Presentation
SEC, July 17, 2018 6

7. Investor stewardship in practice
Engagement typically starts with and/or is weighted towards “governance”:
Source: Norges Bank Investment Management 2017
ACGA Presentation
SEC, July 17, 2018 7

8. Questions for investors
Directors are the primary stewards of a company. How should shareholders exercise their “stewardship” function most effectively? What is the right relationship between the two groups?
How do institutions manage and disclose the conflicts of interest they face?
How do state pension/investment institutions manage the political interference they face?
Should pension funds (“asset owners”) drive stewardship, with investment funds (“asset managers”) playing a secondary role?
ACGA Presentation
SEC, July 17, 2018 8

9. 2. Best practices in engagement – reporting
Information is the foundation of good engagement—and the reason investors seek to meet companies.
Therefore: the more you anticipate, the more questions your reporting answers, the more confidence investors will have in your company, and the more efficient and productive communication will be.
Reporting categories:
Financial
Corporate governance
ESG/sustainability
ACGA Presentation
SEC, July 17, 2018 9

10. Common reporting flaws
Financial reporting:
Flexible interpretation of IFRS accounting standards (eg, aggregating operating expenses)
Lack of narrative in Notes to the accounts / quarterly reports
Corporate governance:
Boilerplate board and committee reports
Lack of narrative around director selection/skills
ESG/sustainability
Lack of stakeholder consultation prior to reporting: What matters?
Voluminous data, lack of clear prioritisation of material ESG risks.
ACGA Presentation
SEC, July 17, 2018 10

11. ESG / sustainability reporting
China: CSR reporting since Emphasis moving towards higher quality reporting.
Hong Kong: ESG Reporting Guide now comply/explain.
Japan: Large number of “integrated reports”/ESG reports.
Singapore: New SGX Sustainability Reporting Guide.
Taiwan: Strong push on GRI reporting.
Thailand: Strong push on CSR reporting.
Interesting feature: Markets in Asia with fewest hard ESG reporting rules (Australia and Japan) have some of the most extensive reporting.
ACGA Presentation
SEC, July 17, 2018 11

12. Questions for companies
Who leads your report writing process: A senior executive/CFO or a middle/lower manager?
Do you benchmark your annual report against the best- in-class locally and internationally in your sector?
Do you invest sufficiently in accounting and internal auditing systems and staff?
Are you investing sufficiently in information technology?
ACGA Presentation
SEC, July 17, 2018 12

13. 3. Best practices in engagement – Dialogue
Think carefully about who you put in front of institutional investors: IR, PR, CFO, director?
Allow your directors, including independent directors, to meet investors.
Allow your independent directors to meet investors on their own.
Allow your audit committee to meet investors.
Allow your chairman to meet investors.
Encourage meetings with groups/delegations.
Respond efficiently to meeting requests. Say No quickly if you need to do so.
Recognise the role played by non-profits/NGOs.
ACGA Presentation
SEC, July 17, 2018 13

14. Best practices in engagement – Japan
The Ministry of Economy, Trade and Industry (METI) in Japan has organised working groups on ESG disclosure and “company investor dialogue” in recent years.
May 2017: ‘Guidance on Integrated Corporate Disclosure and Company-Investor Dialogue’. Four principles:
Understand the meaning of “purposeful dialogue”
Make use of a “shared language” (that evolves)
Promote dialogue within companies
Encourage investors to explain their evaluation processes (of companies)
ACGA Presentation
SEC, July 17, 2018 14

15. CG Watch 2016 – Market rankings
“CG Watch” report: Market scores 2010 to 2016
(%)
2010
2012
2014
2016
Change vs (ppt)
Direction of CG reform
Australia - 78
1. Singapore 67 69 64
(+3)
Mostly sunny, but storms ahead?
2. Hong Kong 65 66
Action, reaction: the cycle of Hong Kong life
3. Japan 57 55 60 63
Cultural change occurring, but rules still weak
4. Taiwan 53 56
(+4)
The form is in, now need the substance
5. Thailand 58
Could be on the verge of something great, if…
6. Malaysia 52
(-2)
Regulation improving, public governance failing
7. India 49 51 54
(+1)
Forward movement impeded by vested interests
8. Korea 45
9. China 43
Falling further behind, but enforcement better
10. Philippines 37 41 40 38
New policy initiatives, but regulatory strategy weak
11. Indonesia 39 36
(-3)
Losing momentum after progress in past survey
Source: Asian Corporate Governance Association.
*CG Watch is a joint publication between ACGA and CLSA. ACGA carries out the market ranking survey.
ACGA Presentation
SEC, July 17, 2018 15

16. “CG spring” in Korea
In late April 2018, ACGA led a delegation of members to meet major Korean companies (and met with):
Samsung Electronics: New chairman
Hyundai Glovis: New independent director (“shareholder representative director”)
Hyundai Motor Group: Senior executives of HMC and group companies, plus a banker
SK Holdings: Chief Financial Officer
Amore Pacific: Executive Director & Head of IR
Point: Korea does not rank well in our survey. Yet its leading companies have the courage to meet investors.
ACGA Presentation
SEC, July 17, 2018 16

17. ACGA Korea Delegation, April 23-25, 2018
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SEC, July 17, 2018 17

18. 7. Concluding remarks
Investor stewardship is here to stay, driven as much by local as by international factors.
Corporate reporting is a foundation of effective dialogue.
Intelligent dialogue with investors generates goodwill and understanding.
Dialogue can be a source of new ideas and perspectives for companies. It is not a one-way channel of communication.
ACGA Presentation
SEC, July 17, 2018 18

19. Contact details Jamie Allen Secretary General
Asian Corporate Governance Association Ltd
Room 1801, 18th Floor, Wilson House
19-27 Wyndham Street, Central, Hong Kong
Tel: (852) (D)
Fax: (852)
Website: 19