According to Google - this is what Stewardship means:
Stewardship refers to the responsible allocation and management of capital to create and preserve long-term value for clients and beneficiaries. It involves investors actively using their rights and influence to promote sound corporate governance, sustainable business practices, and positive environmental and social outcomes. Essentially, it's about being a responsible owner and guiding companies towards long-term value creation by considering environmental, social, and governance (ESG) factors.
This is the first article in our series of Stewardship in Action, sharing information with you about what your fund managers are doing. We are deliberately starting with Magellan Global fund - who do not brand themselves as ethical fund managers, but who have, for a long time taken ESG factors into account in their decision making.
The reason that we are starting with Magellan is the way that they have explained their Stewardship activities in their Stewardship 2024 report, recently released (you can download a copy at the bottom of this blog post.) Magellan don't identify as an 'activist investor' (ie engaging to achieve major change), but their stewardship is still effective and makes a difference.
There are two parts to Stewardship - Engagement with the company and Voting. We expect all our fund managers that we recommend to partake in both of these activities (we have stopped using at least one fund manager that don't do this, and just take the recommendations of their advisers and don't think for themselves).
In Magellans Global Equities Stewardship Report, they have done something that we haven't seen before. For each case study they have added a'Link to Investment Case' description, which ties in the the engagement and voting to the financial aspects of investing.
Another feature of their case studies is their Engagement Progress tracking, where they explain where they are at with their engagement. There are four stages - Objective Set, Acknowledged by the Company, Company Committed to change and Objective Addressed. This is a great way of illustrating that engagement is not a set and forget exercise, it has to be done every year and in an ongoing process.
Some examples that we particularly liked (with their page numbers if you want to download the report below)
Restaurant Labour Management: Page 16 [McDonald's, Chipotle and Yum!Brands]. During 2024 Magellan met directly with these companies to understand their approaches to labour management risks. Magellan also engaged with industry experts to learn more about the risks and pro's and con's and developments.
Magellan looks for 1. Policies and Procedures, 2. Low staff turnover and 3. Minimal Labour-Related Controversies.
Link to Investment Case: Effective labour management is crucial for restaurants to ensure that they are adequately staffed, which enhances operational efficiency, speeds up service to customers, and boosts customer satisfaction levels. Employee related expenses are the equivalent to approximately 25-35% of the restaurants revenue, depending on the store concept. Franchisors are not directly exposed to restaurant labour costs, they can be adversely impacted through lower restaurant royalty income if labour mismanagement results in brand damage, lost customers and lower franchisee restaurant revenue.
Proxy Voting - Remuneration: Page 24 [Eversource Energy].Magellans' remuneration principles are focused on alignment with the company's strategy and alignment with long-term shareholder interest. Eversource acknowledged our view on LTI's (long term incentives) and made some small improvements at the bottom end of the range following discussions in previous years. We confirmed that stock options would not be reintroduced and the use of incentives without performance metrics have been reduced.
Link to Investment Case: Balanced compensation with an emphasis on risk mitigation and management incentivisation, can support the company strategy and creation of long-term shareholder value.
NOTE: this is the first in a series of articles sharing how our fund managers approach Stewardship and Voting.
