Lively discussions on active shareholder engagement

Apr. 01, 2016

”We need to realise the potential we have to influence as owners of companies.” Colin Melvin is CEO of Hermes EOS, a company specializing in helping institutional share owners meeting their fiduciary responsibilities and becoming active owners. On 2 September he visited SIFR and the Swedish House of Finance to discuss the issue of active shareholder engagement.

Colin Melvin shared his experiences of working with responsible ownership with a very active audience. He argued that if a company is well managed, it should be worth more than others. In this quest he believes that it makes sense to work together with other institutional owners to push companies in the right direction. A problem with this approach is how to measure the performance. Does it actually bring more value to be an active shareholder? To be able to evaluate, you need proof that the company is actually changing things. Colin Melvin then presented a case a few years ago when Hermes EOS and a coalition of other investors managed to influence Wal-Mart to increase wages for their lowest paid workers.

Joining Colin Melvin was Geir Lode, Head of Global Equities at Hermes Investment Management. For him and his team the focus is on what not to buy. By avoiding the worst companies they can cut the lower tail of the distribution of future returns. One question that was discussed was the issue of pragmatism. Active investors focus on issues for which compliance is easily verifiable. Laurent Bach, Assistant Professor at the Department of Finance said that this approach has induced companies to listen more and more to investors and that this is good – as long as the demands from the investors are the right ones.”