Often when we engage with a company, it’s because there’s a problem. We nag. We remind companies of their social and environmental obligations. We ask them to do more. But this month’s engagement update is different. We’ve put away our soap boxes and dismounted our high horses to highlight another side of engagement: open, honest and ongoing dialogue.
Over the past three years, we’ve built up an excellent rapport with the German software firm, SAP. Since initiating our holding, the company has faced some significant governance challenges, yet the company hasn’t shied away from talking openly with investors. For example, we were alarmed to read about allegations of corruption in SAP’s South Africa operations a couple of years ago. Our investor relations (IR) contact was available to discuss our concerns and was clearly knowledgeable in his response. He conveyed how appalled the chairperson and co-founder, Hasso Plattner, had been at the news and was able to detail the company’s investigations into the root cause of corruption.
We’ve had the opportunity too to provide feedback on CEO pay arrangements. In our view the package is too complicated and too generous and, again, due to open IR channels, we were able to convey this frankly to the company. We take a stringent stance on executive pay which can make us an outlier in the investment industry. The role of IR is to collate differing investor views and convey them to the board. Although our input didn’t lead to a change the remuneration package in this instance, our views act as an important counter-balance and challenge the status quo.
In our latest call, we talked about employee wellbeing as all SAP staff are working from home at present. The company has taken extensive measures to address employee loneliness by, for example, arranging online social sessions for isolated staff. We also raised questions about the company’s culture and executive, as it has recently reverted back to a single CEO, having introduced a dual-CEO structure only last year. We were also pleased to receive an update on SAP’s environmental programme. The company has already committed to being carbon neutral by 2025 and has a good grasp of how its technology can be used to enable social and environmental change. It has recently launched software to enable companies to calculate the carbon footprint of a product right across its value chain, including the sourcing of raw materials. It also enables buyers to compare the carbon footprint of the same component made in different locations and make greener purchasing decisions.
The IR team at SAP is well-resourced; our contact is both well-informed and generous with his time. Some IR teams prioritise their relationships with larger shareholders; we get the sense that SAP wants to communicate with, and hear the views of, a much more diverse investor base. We note too that our contact is an SRI (socially responsible investment) specialist and can therefore answer our awkward questions on carbon or governance straight away (all too often IR teams need to go and investigate further). The result is that we have developed an excellent understanding of the company, its prospects and the issues that it faces. We have improved insight into the underlying culture and the management team. It’s a win-win for us and them.
Written by Ita McMahon
Please note that this article is intended for information purposes only and it does not constitute a personal recommendation. In particular you should not consider this a recommendation to invest directly in any of the assets discussed in this article, as they may not be appropriate for your circumstances. You should always seek independent financial advice first if you have any doubt that an investment product is suitable for you.