Governance
How we've worked with companies to improve their governance and mitigate risks.
Railpen has a process to identify companies whose governance and behaviour are a concern to us. This is known as Governance and Conduct Zero-Weight (Gov Z-W).
Our process picks out companies where there are ‘red flags’ around governance – the system of rules, practices and processes by which a company is controlled. These are risks that we think might end up becoming a reality in the future.
The process identifies companies that we want to talk to about their conduct. It can also lead to us excluding companies. This happened with Olympus Corporation, a Japanese optics and medical devices manufacturer, in 2019. We did this because of worries about health and safety practices, as well as governance.
Olympus remained on our exclusion list in 2020 as we did not feel it had made sufficient progress on our priority issues.
In 2022, we got in touch with Olympus again to learn about the progress it had made in this area.
We learned from our analysis that there had been improvements since 2019. The company Board had greater independence – including an independent Chair – and there had been a move to a three-committee structure.
We were pleased to hear about plans to further strengthen not only board governance, but also governance of the supply chain, including plans to meet external accreditation standards.
We felt that senior executives now had a clear understanding of the problems. They talked honestly about how things had gone wrong in the past and how they were going to fix these issues.
Although we hadn’t felt ready to reinstate Olympus after our talks in 2020, it scored well in both our 2022 discussions and our analysis of its progress. We therefore decided to remove Olympus from our exclusions list and informed the company of our decision, as well as explaining our thinking behind it.
See an example of how we've used our influence to encourage companies to reward their employees fairly and appropriately.
Find out how we've worked with companies we invest in to improve their climate measures.
Our blogs on Sustainable Ownership and environmental, social and governance (ESG) issues will help you learn more about the Scheme's approach to its investments.