Director engagement also on the up

When Rakhi Kumar joined State Street Global Advisers (SSGA) in 2011, the notion of off-season engagement didn’t exist. But by mid-October this year, Kumar – who serves as SSGA’s senior managing director and head of ESG investments and asset management – says the demand for meetings is ‘the highest we’ve ever received’.

In the week IR Magazine caught up with Kumar, she had received 25 requests from different companies for meetings. While she welcomes the opportunity to catch up with certain companies during the off-season, she explains that SSGA has its own methodology it sticks to when deciding which meetings to take. As an asset manager that votes more than 17,000 proxy issues in a year, having a robust system is a necessity.

‘About 90 percent of our meetings are unique engagements throughout the year,’ Kumar  explains. ‘We really control it. If we spoke to you in proxy season, that was your chance to speak to us. We have a very comprehensive engagement and we will have brought up everything we wanted to discuss.’

There are exceptions, Kumar notes, and it’s up to the company to explain why it needs a follow-up meeting. She’s not interested in being updated on the board’s decisions after a listening campaign, for instance, but if a company is under attack from an activist, has some performance challenges or anticipates some new shareholder proposals, Kumar’s team will consider taking meetings.

Proactive engagement

Kumar is keen to stress that SSGA has its own proactive way of managing off-season engagement – according to SSGA’s annual stewardship report, 85 percent of engagements are proactive. Each year, it picks three sectors it will focus on, as well as a list of themes to focus on, which are contained in SSGA’s annual stewardship report. The sectors for 2018 are:

• Retail (food/apparel/distribution)

• Pharmaceuticals

• Materials.

The themes being prioritized this year are:

• Sustainability and climate

• Governance and compensation

• Diversity and stewardship.

‘We report back to companies about what we learned from these engagements,’ Kumar says. ‘We look at each of the sectors and themes we have prioritized and identify the main challenges they face. We give a lot of insight on the questions we are likely to ask.’

This section of SSGA’s 2018 stewardship report takes up 26 pages and provides information on the number of companies engaged during the past year and what was learned.

When is off-season?

Traditionally, off-season has been defined as occurring in September, October and November. At a recent IR Magazine event, however, one governance adviser recommended that the audience consider cutting through the noise by sending requests for meetings in August.

But Kumar says this tactic isn’t necessary – or welcomed – at SSGA. ‘The fact that I know the number of meeting requests we got this week tells you that I’m shocked by the number,’ she says. ‘The reality is that in the summer we need that down time. We’re coming out of proxy season, which is grueling, and we’re processing everything that happened, what the trends are and how that affects us. We need July and August as a break from constant engagement so that we can hit September fresh.’

Director engagement

Kumar says board directors are increasingly participating in off-season engagement, and they’re a welcome addition. ‘We used to have to ask to see board members, but now they’re coming with the intent of meeting us,’ she says. ‘Engagement culture is getting more sophisticated. Directors understand that we’re giving them a totally different view from what they would get talking to an active portfolio manager who is only going to ask them questions about what the next quarter looks like. Because we’re pretty transparent on our positions once we have them, we’ve had directors come and say they’ve shared our thought-leadership inside the boardroom and it prompted a good debate.’

Kumar paints a picture of a much more developed, and civil, relationship that is forming between her team and the directors they interact with. ‘Many of the directors coming out are comfortable doing so,’ she says. ‘Years ago, when engagement was new, it was not unusual for me to be yelled at by directors. I haven’t been yelled at in a couple of years.’