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Sarasin’s Assessment Process (part 3)

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Governance

Having looked at the environmental  and social  considerations factored into Sarasin’s rigorous ESG appraisal of potential new investments, the last area to explore is governance:

Board Structure

Board composition is regulated by different standards around the world but there are universal principles for representing the interests of minority shareholders.

Sarasin look for:

  • Appropriate skills and experience in all directors
  • Good diversity in board composition
  • Directors who apply sufficient attention to the business. (They consider voting against the reappointment of any that are ‘over boarded’.)
  • A lead independent director and a significant level of director independence.

They also consider governance to be more effective when the positions of Chair and CEO are separate.

Ownership Rights

The history of different businesses leads to varying capital structure and ownership rights. For Sarasin, the ideal is a plural, one-member-one-vote system. They examine any background of shareholder abuses by a controlling/majority shareholder and any golden share or poison pill provisions.

Reporting & Controls

Sarasin consider the financial report and accounts and the position of the independent auditor for the business. The auditor reports to the members rather than management and should have no conflicts of interest – sometimes seen after a long tenure or if the audit firm earns significant non-audit fees. Sarasin look at internal management controls and want to see an independent and anonymous whistle-blowing system in place.

Executive Remuneration

Sarasin look for a balance that ensures the renumeration rewarding positive long-term performance aligns with shareholder objectives and considers all stakeholders. They consider the total pay (including pensions) of the CEO and other key executives and examine the main performance metrics used as well as the differential between executive pay and that of the average employee. There is an expectation for key executives to have a significant shareholding in the business to ensure alignment and that this is retained for at least a year after departure.

Business Ethics

The culture of a business is crucial to its relationship with all stakeholders and its long-term value. Sarasin look for risks stemming from unethical behaviour e.g., anti-competitive behaviour; bribery and corruption (also covered in the social factors ); exploitation of people or natural resources; and other abuses that might raise questions over the reputation and trustworthiness of the company. They carefully consider any controversies linked to lobbying of governments, membership of collective business associations or human rights issues.

We hope that by showing you exactly how rigorous Sarasin’s assessment process is for every company it considers for the portfolio you’ll see exactly why we’re so confident in working with them. We’re glad to know they’re putting in the research on our behalf – when was the last time you asked 137 questions before a single decision?