Fidelity raises corporate governance game

Things are changing at Fidelity International, once seen as-punching below its weight shareholder debates.

When Fidelity International led the high-profile charge to oust Michael Green as chairman-designate of ITV, it was seen by other fund management groups as an unlikely standard bearer for shareholder activism.
Anthony Bolton, one of its star fund managers, may have picked up the unlikely sobriquet of "the silent assassin of the City", but Fidelity has sometimes been seen as punching below its formidable weight in corporate governance.
While it took a leading role in the investor revolt over the. placing of Railtrack into administration, Fidelity has often been perceived as having only an intermittent interest in other shareholder debates and issues.
That may be changing. Over the past two years, it has been quietly building up its corporate governance operations and a shift in attitude seems to be emerging.
Simon Fraser, chief investment officer at Fidelity, insists the fund manager has always been active in corporate governance issues. But he concedes: "Obviously over the last year or two there has been a lot more pressure from customers and the government to raise the game and raise the profile."
A catalyst for change also has been the recruitment of Trelawny Williams from M&G Investments two years ago to head its corporate governance operations.
Since then it has published a set of "principles of ownership", brought a four-man proxy voting team into its London headquarters near St Paul's to be closer to the investment team, introduced a new internal structure for engagement with companies and started quarterly reports to institutional clients on its voting and intervention.
The urbane Mr Fraser says Fidelity has approached corporate governance in a pragmatic way and often behind closed doors.
"It all depends on how you define corporate governance. We have always been very focused on creating value for our customers and shareholders," he says.

“We are much more in that frame of mind rather than specifically doing corporate governance for the sake of it.”
Mr Williams adds: “Our strong preference is to do things very consensually and confidentially. We really do believe that bleating about companies at AGMs and having public disputes is actually a failure of governance."
"Once things go into the public, everyone's position starts to become entrenched; you start to get winners, you start to get losers; you start to get a legacy of controversy over a particular company."
Mr Williams admits the ousting of Mr Green "was clearly not a great example" of that philosophy.
"The outcome was a successful one, but the process was not consistent with the way yve like to do things," he says.
Mr Fraser says there was a "whole series of unique and very unusual circumstances" in the ITV situation.
"The main one being that it was a discussion about corporate governance at a company that did not yet exist. Therefore it was difficult to have a lot of detailed conversations until we saw what shape or form [it would take] or whether the company was going to actually exist," he says.
"That is one of the reasons it was so different from other conversations with companies, which might go on for a month or longer before things come to a head. This was kind of accelerated. It was compressed very dramatically and that's why- we got vocal quite quickly."
Mr Williams also admits that Fidelity may have been "too Delphic" in flagging concerns about the need for an independent chairman to senior directors of Carlton and Granada early last year.
He adds that the advisers to Carlton and Granada did not "do a particularly good job" in ensuring that the board heard the messages from shareholders.
"I suppose you also have to criticise the boards themselves for they had these meetings over the course of the winter. Concern must have been expressed one way or another but they chose not to pick it up," he says.
Mr Williams is intended to be the first contact point for companies seeking to discuss such price-sensitive issues. This is aimed at preventing fund managers becoming insiders and
restricted from trading. Under recent regulations, once one individual fund manager is exposed to price sensitive information, the whole investment house is considered an insider.
Mr Fraser says one reason for Fidelity's low profile in corporate governance is that it usually only takes a public stance when there is an internal consensus among its fund managers. Every fund manager has a different combination of stocks and "quite rightly" they will have very different views on voting, he says. The individual fund managers who hold a particular stock can also change dramatically, even over a few months.
Fidelity also appears to be wrestling with how much of its voting and corporate governance activities to disclose publicly. While it will tell an institutional client how it votes, it refuses to do so for retail investors.
"There is inevitably a conflict between telling people what we are doing and confidentiality," says Mr Williams.
"What we don't want to happen is for a company to come to talk to us on a governance matter and expect to read about it in the newspaper in three or four months' time. We recognise we have obligations and we have to satisfy those, but a full, frank and transparent disclosure is unlikely to happen."