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www.acga-asia.org. Asian Corporate Governance Association (ACGA)  "How to Enhance Effective Engagement - Best Practices in Asia and Around the World" Jamie Allen, Secretary General Benjamin McCarron, Specialist Consultant Asian Corporate Governance Association (ACGA)

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  1. www.acga-asia.org Asian Corporate Governance Association (ACGA)  "How to Enhance Effective Engagement - Best Practices in Asia and Around the World" Jamie Allen, Secretary General Benjamin McCarron, Specialist Consultant Asian Corporate Governance Association (ACGA) Securities and Exchange Commission, Thailand Roundtable Discussion, Bangkok, July 17, 2018 1

  2. Agenda • “Investor stewardship” – meaning and evolution • Best practices in engagement – corporate reporting • Best practices in engagement – investor dialogue 2

  3. 1. “Investor stewardship” – meaning • Institutional investors around the world (pension funds and investment managers) have been under increasing pressure to act as “stewards” of the capital they invest and of the assets/companies they invest in. • What does this mean in practice? • Investors need to look more closely at governance risk and take “environmental, social, and governance” (ESG) factors into account. • They need to be proactive and engage in a “purposeful dialogue” with company management/directors, not just vote shares. • The Global Financial Crisis (GFC) was the turning point. • Institutions in the UK, Europe and US criticised for asking for unsustainably high returns, especially from banks, and ignoring burgeoning risk in the system. • These basic concepts were not new…. 3

  4. “Stewardship” before stewardship codes • 1980s/1990s: State pension funds in the US began to develop policies and strategies on corporate governance. Voting shares, highlighting poor performers (CalPERS). • 1990s/2000s: Pension funds and asset managers in the UK started to follow suit, with voting/CG policies and active voting. • 2000s: Superannuation (pension) funds in Australia became actively involved in corporate governance issues and voting. • 2005: National Pension Service in Korea revised its voting policies. • Mid-2000s: ACGA members actively voting in this region. • 2010: Employees Provident Fund, Malaysia, published its internal CG Principles and Voting Guidelines. • Voting gradually led to engagement… 4

  5. How global investors have engaged Evolution over time 5

  6. Stewardship codes in Asia today Source: ACGA research 6

  7. Investor stewardship in practice Engagement typically starts with and/or is weighted towards “governance”: Source: Norges Bank Investment Management 2017 7

  8. Questions for investors • Directors are the primary stewards of a company. How should shareholders exercise their “stewardship” function most effectively? What is the right relationship between the two groups? • How do institutions manage and disclose the conflicts of interest they face? • How do state pension/investment institutions manage the political interference they face? • Should pension funds (“asset owners”) drive stewardship, with investment funds (“asset managers”) playing a secondary role? ACGA Presentation SEC, July 17, 2018 8

  9. 2. Best practices in engagement – reporting • Information is the foundation of good engagement—and the reason investors seek to meet companies. • Therefore: the more you anticipate, the more questions your reporting answers, the more confidence investors will have in your company, and the more efficient and productive communication will be. • Reporting categories: • Financial • Corporate governance • ESG/sustainability ACGA Presentation SEC, July 17, 2018 9

  10. Common reporting flaws Financial reporting: • Flexible interpretation of IFRS accounting standards (eg, aggregating operating expenses) • Lack of narrative in Notes to the accounts / quarterly reports Corporate governance: • Boilerplate board and committee reports • Lack of narrative around director selection/skills ESG/sustainability • Lack of stakeholder consultation prior to reporting: What matters? • Voluminous data, lack of clear prioritisation of material ESG risks. ACGA Presentation SEC, July 17, 2018 10

  11. ESG / sustainability reporting • China: CSR reporting since 2006. Emphasis moving towards higher quality reporting. • Hong Kong: ESG Reporting Guide now comply/explain. • Japan: Large number of “integrated reports”/ESG reports. • Singapore: New SGX Sustainability Reporting Guide. • Taiwan: Strong push on GRI reporting. • Thailand: Strong push on CSR reporting. Interesting feature: Markets in Asia with fewest hard ESG reporting rules (Australia and Japan) have some of the most extensive reporting. 11

  12. Questions for companies • Who leads your report writing process: A senior executive/CFO or a middle/lower manager? • Do you benchmark your annual report against the best-in-class locally and internationally in your sector? • Do you invest sufficiently in accounting and internal auditing systems and staff? • Are you investing sufficiently in information technology? ACGA Presentation SEC, July 17, 2018 12

  13. 3. Best practices in engagement – Dialogue • Think carefully about who you put in front of institutional investors: IR, PR, CFO, director? • Allow your directors, including independent directors, to meet investors. • Allow your independent directors to meet investors on their own. • Allow your audit committee to meet investors. • Allow your chairman to meet investors. • Encourage meetings with groups/delegations. • Respond efficiently to meeting requests. Say No quickly if you need to do so. • Recognise the role played by non-profits/NGOs. ACGA Presentation SEC, July 17, 2018 13

  14. Best practices in engagement – Japan • The Ministry of Economy, Trade and Industry (METI) in Japan has organised working groups on ESG disclosure and “company investor dialogue” in recent years. • May 2017: ‘Guidance on Integrated Corporate Disclosure and Company-Investor Dialogue’. Four principles: • Understand the meaning of “purposeful dialogue” • Make use of a “shared language” (that evolves) • Promote dialogue within companies • Encourage investors to explain their evaluation processes (of companies) ACGA Presentation SEC, July 17, 2018 14

  15. CG Watch 2016 – Market rankings • Source: Asian Corporate Governance Association. • *CG Watch is a joint publication between ACGA and CLSA. ACGA carries out the market ranking survey. 15

  16. “CG spring” in Korea In late April 2018, ACGA led a delegation of members to meet major Korean companies (and met with): • Samsung Electronics: New chairman • Hyundai Glovis: New independent director (“shareholder representative director”) • Hyundai Motor Group: Senior executives of HMC and group companies, plus a banker • SK Holdings: Chief Financial Officer • Amore Pacific: Executive Director & Head of IR Point: Korea does not rank well in our survey. Yet its leading companies have the courage to meet investors. 16

  17. ACGA Korea Delegation, April 23-25, 2018 17

  18. 7. Concluding remarks • Investor stewardship is here to stay, driven as much by local as by international factors. • Corporate reporting is a foundation of effective dialogue. • Intelligent dialogue with investors generates goodwill and understanding. • Dialogue can be a source of new ideas and perspectives for companies. It is not a one-way channel of communication. 18

  19. Contact details Jamie Allen Secretary General Asian Corporate Governance Association Ltd Room 1801, 18th Floor, Wilson House 19-27 Wyndham Street, Central, Hong Kong Tel: (852) 2160 1789 (D) Fax: (852) 2147 3818 Email: jamie@acga-asia.org Website: www.acga-asia.org 19

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