At Castlefield, our investment process is a 'responsible' ESG mandate in nature - meaning that in addition to considering Environmental and Social issues, we also look to encourage adherence to Corporate Governance best practice in our investee companies.
Generally, smaller companies listed on the main UK equity market or the Alternative Investment Market (AIM) are subject to less strict governance requirements. At this end of the market capitalisation range, we tend to see greater divergency the standards of reporting and governance structures.
Following an extensive engagement project with AIM-listed companies on the topics of diversity and remuneration, we have now authored a report to illustrate our findings. The report highlights areas in which we feel companies are improving as well as the gaps we believe need to be addressed more systematically by smaller businesses. We have also highlighted a few of our investee companies that we feel stand out as leading the way in their approaches.
In our experience dealing with smaller listed businesses, we identified diversity and transparency around remuneration as two key topics where there was significant room for improvement compared to their larger peers. These are topics which we take very seriously and felt that it would be a productive exercise to speak with management teams and Boards of Directors and to set out our views on best practice.
We began our engagement by sending letters out to our AIM-listed investee businesses and for some time have been following up with meetings where necessary to improve our understanding of how these issues are viewed internally. We have had a large number of very informative calls.
One of the most pleasing results from this engagement project was that the majority of companies were very open and willing to discuss the topics in detail. There was a response rate of 87% from the companies we contacted about remuneration transparency and the inclusion of a shareholder vote. Interestingly, some reported that this was the first time they had been contacted by shareholders on the subject.
Most investee firms were also very interested in hearing our suggestions on how they could improve their reporting standards – with some companies sharing examples of how they had exceeded reporting requirements A number of specific examples have been included within the report to share best practice.
Such engagements are a key part of our investment process, whilst continuing to build long-term and constructive relationships with companies on behalf of our investors we believe we can improve the outcome of our engagements.
We are pleased to be able to share the results of this engagement in this report. You can view the full report below, or download the report here.