Charities can influence the organisations they invest in, says Kate Rogers, client director at Schroders
As individuals involved in the charitable sector, we often pride ourselves on occupying the moral high ground or operating for the greater good.
In this context, there has been much debate on how the objectives of our charities should be reflected in the assets these charities own.
Many charitable investors struggle to match what their charity stands for with what their charity owns - whether it is pursuing a specific aim or meeting general charitable objectives.
A recent report about governance and financial management of charities by Richard Jenkins for the Association of Charitable Foundation is available for free on the ACF's website. It suggests that trustees should think about achieving their aims in all manner of ways, whether through maximising financial return, adopting ethical investment approaches or using their charity's influence to engender change.
The last point is particularly relevant, given that charity investors, as shareholders, have the ability to influence the management of companies through voting. Much has been written of the recent AGM season and the 'shareholder spring', when an uprising of disgruntled investors has led to changes in some of the country's largest companies. These protests have focused on executive pay and have taken some high-profile scalps. Two companies, Trinity Mirror and Aviva, have lost their chief executives and many more have faced significant votes against their pay packets.
The recent outcry over Barclays and the rate-fixing scandal has resulted in yet more change at the top of the corporate pile. A study by the proxy voting agency Manifest and the remuneration consultancy MM&K found that Bob Diamond, Barclays' former chief executive, was the top earner in the FTSE100 last year with total realisable remuneration of nearly £21m. Whether we are all being spurred on by the increasing gulf between these 'leaders' and most of society suffering from austerity, or by political rhetoric, it is clear that the tide has changed.
Perhaps we are getting better at finding our collective voice. In April, a group of charity investors wrote to The Daily Telegraph to urge other investors, including charities, to use the rights conferred on shareholders to influence corporate governance. They suggested that we examine the remuneration policies of the companies that we invest in and seek an alignment of interests, transparency and appropriateness in remuneration.
Sounds pretty simple. But this is fraught with difficulties. Charities'
assets are often managed by investment managers, and charities do not hold shares directly themselves. This means investment managers must vote on charities' behalf. Investment managers often follow house policies on corporate governance, unless the charity has a specific voting policy.
To create your own policy, you would need to sift through the numerous votes at each AGM and work out your charity's view on each. In my experience, the most successfully implemented voting policies involve working closely with your investment manager to identify the issues most important to your charity.
As the ACF's report highlights, there are many ways that charities can fulfil their aims, and the approach that each one takes to maximise its overall impact on beneficiaries will vary from charity to charity. As charity investors, we strive for successful stewardship of charitable assets to support our operations and, ultimately, our beneficiaries. The role of voting within this context should not be overlooked.
Kate Rogers, client director, Schroders