Good corporate governance.

Engaging with companies about what matters to shareholders

“Corporate governance is about protecting shareholders, aligning the interests of companies with investors as well as Maximising shareholders’ long term interests.”

Sacha Sadan
Director of Corporate Governance

Consistent ESG Engagement Trend (bar chart)

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Corporate governance covers a broad remit of financial and extra-financial elements, from how a company is managed to the rights of shareholders. It’s about looking after the long-term interests of shareholders, by voting and engaging directly with the companies we invest in and making sure they have the right structure in place to manage their own risks and opportunities.

We’re also aware that individual shareholders lack the influence to ask difficult questions on how companies are impacting society, the economy and the environment. Therefore, the responsibility of institutional shareholders is to take this challenge to large companies on behalf of the people they represent.

Legal & General Investment Management (LGIM) is a major investor in the UK and also a significant investor in equities and fixed income assets globally.

Asset Mix 2011 (pie chart)

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We’re committed to using our position of influence to help improve board practices and performance in the markets in which we invest. This involves engagement with investee companies directly and collaboratively with other institutional investors.

In recent times, we have seen an increase in investor activity globally as demonstrated by shareholder proposals being put forward at general meetings. These proposals range from the removal of directors from the board and the appointment of shareholder nominees, to calls for increased transparency on environmental and social issues. The topics below highlight some of the key risks we engaged on in 2011, to protect shareholder value.


Excessive executive remuneration has been under public scrutiny for many years, but the spotlight particularly increased in 2011. The High Pay Commission study, over the ten-year period to 2010, revealed that FTSE 350 executives' salaries had increased by 63.9%, bonuses by 187% and long-term incentives by 254%. Yet, earnings of these companies only increased by 73% and profit before tax by 50.9%.

See the High Pay Commission report

The disparity between pay and performance led the Business Secretary, Vince Cable, to initiate a consultation to find a way to help companies and shareholders to prevent payments for failure, improve transparency and reduce the complexity of existing schemes.

We have actively participated in numerous industry consultations including the Department for Business Innovation and Skills (BIS) Executive Remuneration consultation. We pushed for pay packages to be simpler, aligned with shareholder interests and support the long-term strategy of the business.

See Investment Weeks opinion of our work


The Davies Report, published in February 2011, called for concerted voluntary action by UK companies to redress the gender imbalance of UK boards. The report pushed for FTSE 100 boards to have a minimum of 25% female representation by 2015, as opposed to the current level of 15%. It also called for all chairmen of FTSE 350 companies to set out the percentage of women they aim to have on their boards in 2013 and 2015.

See the Department for Business Innovation and Skills views on Diversity

Furthermore, the UK Prime Minister, David Cameron, has warned that Britain’s economic recovery is being held back by a lack of women in boardrooms. Also, there is clear evidence that ending Britain’s male-dominated business culture would improve performance.

We’re not only aware of the issues surrounding lack of female representation on the board, we push for general diversity on the board in terms of skills, experience, culture and nationality and background.

See what Business in the Community said

See more on the "30 Percent Club"

See our views to the Financial Reporting Council

See our Fundamentals Briefings to Journalists


The issue of energy, in terms of its spiralling costs, ever-rising emission levels and unpredictable security, were prominent concerns for the government, businesses and households during 2011. Due to global market factors, household electricity prices in the UK increased by around 14% and gas by around 20% during 2011. (DECC)

Amongst such uncertainties, energy efficiency provides relatively cheap but high return potential, with quick wins obtained through smarter use of buildings, transportation and industry.

We engaged with companies on a range of energy-efficiency measures during 2011, as we increasingly witnessed its significant financial benefit. We’ve also supported regulatory initiatives such as the Green Investment Bank.

See how the Group contributed to the Climate Change debate in 2011 (PDF) 1.2 MB

What WE’RE doing to improve EVERYDAY Corporate Governance

Sacha Sadan joined LGIM as Director of Corporate Governance in June 2011. The team expanded to seven professionals with an average of 13 years’ investment experience.

  • We voted at 2510 general meetings of 2480 companies in 21 countries, covering all major developed markets. See our Corporate Governance Report We followed up with companies on our against votes in key markets. This allowed us to explain our voting policy and rationale as well as to build relationships with companies in these regions.
  • We conducted in-depth engagement with 238 individual companies. Over 30% of these covered environmental and/or social topics.
  • We were consulted on 125 executive remuneration plans. Of those where we recommended changes, over 40% amended their plans. We voted against the remuneration reports of those who didn’t change their plans.
  • We signed up to international investor network groups including the International Corporate Governance Network, the Council of Institutional Investors (US) and the Institutional Investor Group on Climate Change.


As a major shareholder in global companies, we consider it important to try to shape the future of corporate governance and to improve best practice. One of the most constructive ways to achieve this is to voice our views through submissions to industry consultations. We responded to the following consultations during 2011:

We participated in the following industry-wide surveys:

  • Trades Union Congress – Fund Manager Voting Survey
  • Independent Commission on Banking through Association of British Insurers
  • Investment Management Association

We also took part in the following collective letters to bring changes at a regulatory and country level:

  • Global statement on climate change for Durban Summit
  • European Union Investment statement on Extractive Industries transparency Initiative (EITI)
  • Arms Trade Treaty
  • Low carbon investment statement through ClimateWise


There are three key themes for our 2012 activities around our corporate governance campaign:

  • Taking a stance on executive pay with company performance, board diversity and UK listing rules.
  • A focus on the sustainability of the extractives sector
  • Environmental, social and governance (ESG) integration.

We’re increasingly focusing on integration around ESG topics. That means we may look at environmental issues with their social implications, link sustainability issues with governance structures and address how all such issues are integrated into the general investment dialogues with companies.

In line with the 2011 target, we will continue to bring material, environmental and social topics into our day-to-day conversations with companies.

For 2012, the company engagement target has been changed from number of individual companies to a number of meetings. We found we get the best results through repeated meetings with company boards and executives. The target is to engage with companies on 300 occasions in 2012. A quarter of these should cover environmental and/or social topics.

Key focuses for 2012 in our engagements will include:

  • the alignment of executive pay with company performance
  • board diversity
  • UK listing rules

We will carry out in-depth engagements with companies in the extractive sector on energy-efficiency, water management, human capital and health and safety.


Case Studies

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