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Stewardship: being a responsible shareholder

February 2017
4 mins. To Read

We aim to buy securities trading at a discount to intrinsic value, with intrinsic value being the price a prudent businessperson would pay for the business. But our work isn’t over when we buy a security. A competent businessperson would never stick their head in the sand after their initial purchase. They would take a keen interest in the company’s affairs, engage regularly with its managers, and guide the company toward better decisions. As stewards of your capital, we do much the same with the companies held in the Orbis Funds.

Meet the brass

We had more than 700 meetings with company management in 2016. In such meetings, our primary objective is to improve our understanding of the business. We believe that responsibility for a company’s day-to-day operations rests with its executives and that we probably have limited value to add here. Still, there are times when we can contribute to a company’s deliberations over its broad strategy. When offered these opportunities, we are always happy to share ideas that could enhance shareholder value.

Sometimes those ideas are criticisms, such as situations where we question a company’s strategy or governance. In such cases, we raise these concerns with management, and if our concerns persist, we may meet with an independent director or write to the company’s board—each of which we did more than once in 2016. We usually keep this dialogue private, but on rare occasions we may publicise our concerns.

Approaching voting

Our meetings with management are typically a constructive and informal form of communication. Shareholders can also express their preferences in a more formal way—voting. We approach shareholder votes taking into account a wide variety of considerations and without prescriptive rules. In voting decisions as in investing decisions, we make up our own mind, guided by what we believe will be in the interests of the Funds we manage on behalf of our clients.

Our voting record is available to clients on our website. Many votes cover routine matters, such as approving financial statements, and on others we would usually expect to support management’s recommendation. But as with any long-term relationship, there will be some disagreement: in 2016, for example, the Orbis Global Equity Fund did not support management’s recommendation for 5% of votes.

Votes against management’s recommendation

Shares represent ownership of a fraction of a company. That fraction shrinks when companies create more shares. This can make existing shares less valuable, so our analysts scrutinise any resolutions that grant a company general authority to issue new shares. Such proposals are common in certain countries in the Asia ex-Japan region. In 2016, we voted against ten such proposals by companies in the region whose shares were owned by our Funds.

In many countries, shareholders vote on executive pay. On more than a dozen occasions in 2016, we abstained or voted against a company’s executive remuneration policy. This doesn’t necessarily suggest a dim view of the company’s executives. It could also signal that we believe the compensation scheme should be better designed. We recognise that no perfect policy exists, but we believe an effective scheme should attract and retain good managers, compensate them fairly based on their performance, incentivise behaviour that maximises long-term shareholder value, and discourage behaviour that destroys value.

And it is not just executives who deserve scrutiny. If we believe the election of an individual director may harm the interests of shareholders, we may vote against their appointment. In forming these assessments, we consider the performance of other companies where the individual has served as a director, whether they have time to devote to the appointment, and the overall performance and composition of the company in question. In 2016, we voted against more than 30 director appointments.

Putting practice on paper

We believe our stewardship role is an essential part of our job and our investment philosophy. In performing this role, we always aim to act with a view to the interests of the Funds we manage on behalf of our clients. Recognising the importance of shareholder responsibilities, several bodies worldwide promote good practice and encourage investors to disclose their approach to stewardship. We have previously issued statements outlining how we apply the principles of the UK and Japanese Stewardship Codes. Most recently, we are pleased to have become a signatory to the United Nations-supported Principles for Responsible Investment. For more information on our approach to these issues, please visit the Responsible Investing section of our website.

This Report does not constitute advice nor a recommendation to buy, sell or hold, nor an offer to sell or a solicitation to buy interests or shares in the Orbis Funds or other securities in the companies mentioned in it (“relevant securities”). It has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Orbis, its affiliates, directors and employees (together, the “Orbis Group”) are not subject to restrictions on dealing in relevant securities ahead of the dissemination of this Report. Subscriptions are only valid if made on the basis of the current Prospectus of an Orbis Fund.

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