As with any investment, your or your clients' capital is at risk.
At Baillie Gifford, we are highly engaged with the companies we invest in. We support management in making decisions that drive long-term returns. Our investment teams actively manage our portfolios, which are concentrated and growth-orientated.
Our belief and trust in the management team is often an important part of the decision to invest in a company. The concept of ‘management quality’ has long been a core component of our investment research.
Proxy voting – where we exercise shareholder votes on our clients’ behalf – is an integral part of our stewardship activities. Our average holding period is about eight years, but we have held some companies for decades. This means we build strong relationships with management and are most influential when sharing our views during meetings with executives and their teams.
As long-term owners seeking to invest in a relatively small number of exceptional companies, we generally support management. However, proxy voting is an important tool for holding the leadership team accountable, for example when we disagree with decisions made or believe management needs to be more ambitious.
Vote considerations
To describe our voting process: Baillie Gifford has five full-time voting analysts who sit within our ESG (environmental, social and governance) Team and keep track of companies’ annual general meetings (AGMs).
Once they have the meeting details, the analysts research and scrutinise each resolution, considering:
- our voting history
- research and company meeting notes from our investment teams
- corporate governance in the relevant country
- company documents
- analysis from third-party proxy advisors
The analysts consider every vote in-house on a case-by-case basis and do not follow proxy advisor recommendations.
If a matter is routine or uncontentious, the analysts are empowered to make voting decisions. For example, approving the annual report, supporting the re-election of directors where board composition and effectiveness are not in question or renewing a growth-focused remuneration plan.
Otherwise, the analysts discuss the issue with whichever investment teams hold the stock, including those teams’ embedded ESG specialists. This might involve a controversial pay proposal or an issue about board diversity. The investment teams make the ultimate voting decision.
On occasion, different investment teams might decide to vote differently. This aligns with our decentralised and autonomous investment culture: investment teams make decisions in clients’ best interests, according to the aims of their investment strategy.
This process supports us in making thoughtful and robust voting decisions linked to the investment case, as illustrated by the following examples:
PDD Holdings
Formerly known as Pinduoduo, PDD Holdings is a multinational commerce group that has achieved worldwide recognition through its shopping app Temu. We have previously engaged with the board on the lack of female directors and suggested potential candidates. As the board remained entirely male at the 2023 AGM, we decided to oppose the chair of its nomination committee.
Outcome:
The nomination committee’s chair received almost 15 per cent dissent at the AGM. We communicated our voting rationale to the company, which acknowledged our decision and committed to informing us of its progress on this topic. We were pleased to see that PDD appointed a female director in August 2023.
Kering
Kering is a French-based multinational company specialising in luxury goods. Ahead of 2023’s AGM, we arranged a call to discuss the remuneration paid for the 2022 financial year with the company’s legal director. Our concerns related primarily to the ESG metrics within the annual bonus, which paid out at 100 per cent.
We had previously raised concerns with the stretch of these targets and continued to believe that the vague wording of the metrics and lack of connection to Kering’s sustainability strategy were weaknesses.
We were also surprised to learn that the remuneration committee did not consider an advertising controversy to be a material consideration in determining the achievement rate for the ‘compliance and ethics’ or ‘organisation and talent management’ components of the ESG metrics. As a result, we decided to oppose resolutions relating to the remuneration paid to executives for the 2022 financial year.
Outcome:
The three backward-looking proposals on executive compensation received varying levels of support ranging between 77 to 92 per cent and ultimately passed. We were pleased to see that in response to shareholder feedback, the company has now strengthened the ESG metrics to be more focused and challenging.
Starbucks
Starbucks is one of the world’s biggest coffee retailers. At the 2023 AGM, we supported a shareholder proposal calling for an assessment of the firm’s adherence to its commitment to workers’ freedom of association and collective bargaining rights, as contained in the International Labor Organization’s core labor standards handbook and explicitly referenced in Starbucks’ global human rights statement.
The proponent claimed that Starbucks had interfered with these rights, undertaking retaliation, intimidation, job dismissals, captive audience meetings, undue surveillance and illegally excluding unionised employees from worker benefits.
The media gave significant attention to these claims before the AGM, and we had raised the topic in conversations with the company over the previous year. We assessed that the proposal, clear in its ask, addressed a material issue, and thus we supported the request.
Outcome:
We were pleased that the proposal passed after receiving 52 per cent support. After voting, we explained to Starbucks why we thought this was in the company’s best long-term interests and welcomed the subsequent completion of the third-party assessment in October 2023.
In responding to the findings, the company has made commitments to improve how it manages tensions with employees who wish to unionise and how the board oversees labour relations issues. These should lead to substantive improvements, and there have been promising developments in early 2024. We will continue to monitor progress against these commitments.
To explore this topic further, we invite you to explore our Investment Stewardship Activities Report. You can also find all our quarterly voting disclosure reports on our website’s Responsible Investment pages.
Risk factors
The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.
This communication was produced and approved in April 2024 and has not been updated subsequently. It represents views held at the time and may not reflect current thinking.
All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.
This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.
All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.
The images used in this communication are for illustrative purposes only.
Important information
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This material contains general information only. It does not take into account any person’s objectives, financial situation or needs.
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