When we talk about environmental, social and governance (ESG) issues and how we manage them, we often highlight our efforts in the environmental space—investing in environmentally-responsible companies, monitoring our investments’ environmental impacts, or profiling the sustainable investment options available to our members.
But less is known about the ‘G’—governance—part of ESG, which in many ways is one of the most important.
"We mightn’t immediately think of governance as a terribly exciting topic,” says Sybil Dixon, Senior Investment Analyst at UniSuper. “But like everything, there’s a lot more to it than meets the eye."
Good corporate governance—which is crucial in creating and maintaining workplace culture, an equally important consideration—is a key factor in all of UniSuper’s investment decisions.
"As a fund, we like to invest in quality companies, and quality companies tend to have quality management,” Sybil says. “This tends to lead to stronger corporate culture, generally."
"We often see a direct correlation between good corporate governance and business performance. So in the end, governance is another lens we can use to see how well a company is managing their business as a whole."
Votes of confidence
Sybil says Australia’s relatively robust shareholder voting system allows investors like UniSuper to make their voices heard at the board level.
“In Australia, the ‘two strikes’ law means a company’s board can be replaced, or ‘spilled’, if management’s remuneration proposals receive a 25% ‘no’ vote two years in a row.
“In recent years, we’ve used our voting rights against a major Australian financial services company’s remuneration proposal,” Sybil says.
“Along with other investors, this led to a ‘first strike’ being levelled against the company.”
The following year, there was a significant drop in the bonus and incentive levels of key management as a result of recent poor performance, Sybil says. “This demonstrates the impact we can have in situations where we feel a company’s governance isn’t meeting our expectations.”
Good safety and risk management practices are other excellent indicators of healthy corporate governance.
“From a UniSuper perspective, if employees of a company are having poor occupational health and safety outcomes, and we’re invested in that company—that is unacceptable,” Sybil says.
“By engaging with companies and communicating that those kinds of risks are unacceptable, we’re able to apply pressure at the board level and make them priorities, front and centre.”
Sybil says that as a large investor, UniSuper is able to use its influence to actively drive change. “If we’re looking to invest in industries with higher levels of OHS risks, safety is absolutely a key area for us to look at. Wellbeing and safety of staff aside, again, it’s often a good indicator of the quality of business management, and we can use our sway to help make it even better if needed.”
The more, the merrier
Sybil says that having diversity across key management levels is another area UniSuper looks at closely. “As an investor and founding member of the Australian Council of Superannuation Investors (ACSI), we take this topic really seriously.
Historically, companies with greater board and executive diversity tend to consistently outperform companies with less diverse management teams,” Sybil says.*
“And diversity isn’t always just about gender. It can include different backgrounds and experiences, which we find flows through to more robust cultures and corporate governance.” UniSuper Chair, Ian Martin, says good corporate governance starts at home.
“Our Board comprises individuals from diverse backgrounds, elected from academic and non-academic staff, through to employers, Vice Chancellors and unions, which we believe is healthy and helps ensure our culture is consistent with the members we ultimately work for,” Ian says.
“There are four female Directors currently on our Board, and while there’s always room to improve, the current gender mix of the Board gives a good balance, leading to more diverse governance, cultural and strategy contributions.”
Our approach to governance
Good corporate governance underpins the performance of all the companies we—and therefore, you—invest in. Learn more about our approach to governance and responsible investing more generally.
* Past performance is not an indicator of future performance.
Don’t miss our next Super Informed Radio podcast where Talieh Williams, Manager of Governance and Sustainable Investment at UniSuper, will join Sybil to discuss our approach to governance considerations in more detail.