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| Corporate Governance in the Investment Process |
Before being included in the SPG portfolio,
all holdings go through a stringent, rule-based research and
investment process. Corporate governance is an important analysis
and decision-making criterion within the SAM Corporate Sustainability
Analysis (marked arrows). Each step of the process involves
a detailed analysis of the corporate governance standards
of potential portfolio companies.
[Screening]
[Assessment]
[Focused Analysis]
The objective of the first part of the SAM
Corporate Sustainability Analysis™ – the Screening
– is the identification of global sustainability leaders
in all industries. This screening process reduces the initial
universe to 500 companies (420 Leaders, 80 Pioneers). One
of the tools used for the screening is SAM's online questionnaire.
SAM has developed 60 industry-specific questionnaires covering
economic, environmental and social criteria, based on both
general and industry-specific trends. The first part, covering
the economic dimension, includes detailed questions on corporate
governance.
These are some of the questions put to companies:
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- How many members are on your board of directors?
- How many board members have executive functions
in your company?
- Is the board headed by a non-executive and
independent chairman or an independent lead
director?
- How many employee/trade union representatives
are on your board?
- Please indicate who is responsible for the
following functions: Strategy, audit, risk management,
selection and nomination of board members, remuneration
of board members, etc
- Does the board of directors issue corporate
governance guidelines or detailed information
on its internal corporate governance, such as
biographies of directors?
- Please indicate the percentage of the main
nationality represented on your Board of Directors
relative to all other nationalities represented
on the Board
- How many women are members on your company's
Board of Directors?
- Please indicate the percentage of non-audit
related fees as a percentage of total fees paid
to your auditing firm
- Does the company publicise the remuneration
of the board of directors and other highest
paid senior executives?
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The second part, the
Assessment,
involves a thorough analysis to spot weaknesses with regard
to short-term sustainability risks.
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The
most relevant areas of corporate governance are
analysed in depth as part of this assessment.
Corporate governance is an exclusion
criterion for about a quarter of the industries
analysed:
- Advanced Industrial Equipment
- Banks
- Biotechnology
- Casinos
- Electric Components & Equipment
- Financial Services
- Fixed-Line Communications
- Healthcare Providers
- Industrial Equipment
- Industrial Services
- Industrial, Diversified
- Insurance
- Medical Products
- Pollution Control
- Real Estate
- Textiles & Apparel
- Toys
- Wireless Communications
If the corporate governance rating
produced by the online questionnaire and the assessment
does not come to at least 50% of the score for
the "best-in-class" company, the portfolio
candidate is rejected. The poor corporate governance
rating therefore precludes an investment in this
company.
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The third part, Focused
Analysis, is designed to identify the industry
and technology leaders within each sector. Each company's
strategic position and strategic goals are analysed with regard
to the industry's opportunities and challenges. The
company's ability to maintain its strategic position or achieve
its strategic goals is evaluated.
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The following corporate governance
criteria have a positive impact on the company's
rating:
- Independence of non-executive board members
- Function of chairman of the board and CEO
performed by same person
- Internal remuneration policy has been approved
by the general meeting of shareholders
- The auditor's advisory mandate does not exceed
one quarter of the audit costs
- No "golden parachutes" (overgenerous
redundancy packages in the event of takeovers,
etc.)
- Transparent communication of corporate governance
guidelines
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The remaining companies are sustainability
leaders which are likely to generate long-term shareholder
value for investors.
The selection of shares for inclusion in the
portfolio takes account of the difference between the share
price and the fair value of the company. The fair value is
determined using a sustainability DCF valuation model, factoring
in the results of the entire SAM Corporate Sustainability
Analysis.
The active management of the SPG portfolio
also takes market and sector developments into consideration,
as well as changes in companies' relative valuation.
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