The 'G' in ESG

The way companies are run matters

If companies are badly run, this can affect their profitability, make them a potential investment risk.

For instance, organisations which fail to keep proper track of their accounts can get into financial difficulty or even go bust, causing a loss of jobs and services which damage the wider community. We also expect companies to respect the rights of investors by adhering to the highest market standards. This includes providing high-quality reporting disclosures and treating shareholders equally.

A lack of diversity on governing boards can lead to inward thinking that stifles innovation. Lack of robust oversight over senior posts can lead to unchallenged, poor, and sometimes costly, business decisions. Some of these poor business decisions can also result in events that may damage our environment.

Guiding companies towards good governance

Within our internal funds (funds managed by a Legal & General Group company), LGIM engages with the companies in which it invests to help improve how they are run. This includes looking at the strength of their corporate strategies and the independence of the auditors who check the numbers. As shareholders, LGIM also uses its voting rights to hold companies to account.

In 2023, LGIM

  • Applied 265 votes against US companies with dual-class share structures. Dual-class share structures can be considered bad corporate governance as they may give more power to the company’s founder and/or disproportionate shareholder rights.
  • Clarified its stance on UK and US pay in LGIM’s Regional Executive Remuneration Policies. Globally, LGIM opposed 52% of all management-proposed pay-related proposals, due to the companies not meeting LGIM’s minimum standards for fair and appropriate long-term performance-based pay.
  • Published its expectations of companies on artificial intelligence (AI). LGIM’s focus is on the governance aspects of AI, particularly how companies manage risks and opportunities, and improve transparency.
  • Engaged with the four largest US tech firms (Alphabet2, Apple2, Meta2 and Microsoft2) that are building AI systems as products.
Young diverse team meeting round an executive table

Spotlight on pay and income equality

Over the course of 2023, LGIM:

  • Supported 238 (75.8%) of the 314 remuneration policy votes proposed at UK companies,
  • Voted against 120 (20.3%) of the 591 remuneration reports proposed,
  • Opposed the election of 61 remuneration committee members in the UK, due to LGIM’s persistent concerns over their pay practices,
  • Opposed 52% of all global management-proposed pay-related proposals, due to the companies not meeting LGIM’s minimum standards for fair and appropriate long-term performance-based pay.

All data based on LGIM internal vote data, 2023.

Spotlight on addressing poor pay practices in North America

In 2023, LGIM voted against 86.5% of management-proposed pay proposals at US companies. Many of these related to performance conditions not being measured over a three-year period, a majority of long-term incentives not being linked to any performance conditions at all or becoming payable for below median relative performance (measurement of performance data).

In 2023, there were 13 companies in the S&P 500 that failed their ‘say on pay’ vote, five less than in 2022.

LGIM voted against each one of these. These included:

  • American International Group2 and Broadcom2 due to significant one-off awards, limited performance linkage and below median comparable performance,
  • Equifax2 due to a $25 million retention award to the CEO with weak target rigour, including median performance,
  • Netflix2 due to a lack of long-term aligned, performance-based incentives,
  • ServiceNow2 for failing to appropriately address the previous year’s shareholder concerns over poor pay-for-performance alignment, sizeable awards and a focus on short-term performance.

From 2024, LGIM will apply additional voting sanctions on the ‘say on pay’ proposals at US companies where:

  • executives use corporate jets for private purposes,
  • at S&P 500 companies whose total shareholder return (TSR) has underperformed the S&P 500 over the previous three years, and their CEO pay ratio exceeds 300.

All data based on LGIM internal vote data, 2023.

For illustrative purposes only. Reference to a particular company is on a historic basis and does not mean that the company is currently held or will be held within an LGIM fund. The above information does not constitute a recommendation to buy or sell any asset.

The value of your pension savings can go down as well as up and is not guaranteed.

Most of the activity described on this site is carried out by Legal & General Investment Management (LGIM), a division of Legal & General. LGIM manages your funds and makes the day-to-day investment decisions.

All our funds are managed by professional fund managers but some of the funds available to you are not managed by Legal & General. External fund managers may take a different approach to responsible investing.

Throughout this site, we use companies as examples of the action we take. The issues highlighted are not exclusive to them.

Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The information on this site does not constitute a recommendation to buy or sell any security.