Shareholder Engagement and Performance

November 2007

Abstract

The question of whether there is a link between shareholder engagement and performance is significant for a fund manager such as Hermes, which undertakes engagement work on behalf of a number of large pension funds. The corporate governance activities carried out by Hermes are based on the fundamental belief that companies with governance structures that allow shareholders to hold their management to account, and those that have active, interested and involved shareholders will ultimately perform better and be worth more than those where either of these factors is missing. At the very least, sensible corporate governance activities may prevent the destruction of value. Hermes believes that the key to the long-term success of a business is a constructive dialogue between companies and investors, commonly described as active ownership or better engagement. Management and boards which have a dialogue with and are accountable to their owners will tend to operate more effectively in the long term interests of the business and its investors.

Author

Hans-Christoph Hirt

Associate Director-European Corporate Governance, Hermes Pensions Management, UK

Dr Hans-Christoph Hirt Associate Director – European Corporate Governance Hermes Equity Ownership Services Ltd Hans heads the European Corporate Governance and Engagement Team which is responsible for developing and implementing corporate governance policies, shareholder engagement programmes and company specific engagement strategies in Continental Europe. In this function he oversees the promotion of good corporate governance practice and regulation as well as engagement work across Europe. He is the principal author of the Hermes Corporate Governance Principles and together with Colin Melvin wrote Corporate Governance and Performance, a brief review and assessment of the evidence for a link between corporate governance and performance. Prior to joining Hermes in September 2004, Hans spent two years with the leading international law firm Ashurst during which he worked in the corporate, banking and litigation departments. Whilst at Ashurst, he was seconded to the Court of Appeal where he held the position of judicial assistant to the Master of the Rolls, Lord Phillips. Before joining Ashurst, he was a researcher and teaching assistant at the London School of Economics. Throughout his academic and professional career, he has carried out extensive research covering in particular corporate governance, European company law and shareholder remedies and has published widely in these areas in leading corporate law journals. Overall, Hans has nine years experience in corporate governance related work. Recent publications in journals and books include: 'The Review of the Role and Effectiveness of Non-Executive Directors: A Critical Assessment with Particular Reference to the German Two-tier Board System' (2003), 'Regulation of Directors' Remuneration: The German Approach, the DTI's Consultation Paper and the Way Forward' (2004), 'Freedom of Establishment, International Company Law and the Comparison of European Company Law Systems after the ECJ's Decision in Inspire Art Ltd' (2004), 'The Company’s Decision to Litigate Against its Directors: Legal Strategies to Deal with the Board of Directors’ Conflict of Interest' (2005), 'The Enforcement of Directors’ Duties pursuant to the Aktiengesetz: Present Law and Reform in Germany' (2005), 'Der Zusammenhang zwischen Corporate Governance und Performance' (2007). He has also published a book entitled 'The Enforcement of Directors' Duties in Britain and Germany' (2004). Hans obtained a Ph.D. from the London School of Economics where he was a Wedderburn Scholar after gaining an LL.M. at the University of Glasgow. He also has a B.A. Honours in European Business Administration, holds a Postgraduate Diploma in Law and the Securities & Investment Institute (SII) Diploma and is a Diplom-Betriebswirt (ESB-Reutlingen). In 2002 Hans qualified as a solicitor in the UK.

Company

Hermes Pensions Management

Hermes is a fund manager independent of any broader financial services group. We invest funds on behalf of over 240 clients including pension funds, insurance companies, government entities and financial institutions, as well as charities and endowments. However, Hermes’ largest client is the BT Pension Scheme (BTPS) who, as owner of Hermes, gives its investment management perspective a unique insight and close alignment to the needs of other long-term investors and especially pension funds. Hermes, with over 20 years experience of managing money for its initial sponsors, British Telecom and the Post Office, was created in 1995, when it became wholly owned by the BT Pension Scheme. Indicate topic the paper is about eg: Competition, Employment, Data protection, Corporate Governance, Intellectual Property, Litigation, Contracts, IT: Corporate Governance Indicate the sector you are writing about eg: Government, Pharmaceutical, Agriculture, Banking, Insurance, Investment, Retail, Telecommunications, Construction: Fund Management

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Shareholder Engagement and Performance

Abstract

Author

Company

Hermes Pensions Management

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