01 03.2 Engagement outcomes by theme continued Principles 7 9 Introduction 02 Sustainable investing 03 4. Customer and product responsibility investee companies. During the year we continued our Active stewardship As part of our ongoing engagement with a US engagement focus on the following governance topics: Shaping pathways for a sustainable future 03.1 Our engagement approach technology company, we discussed its plans to enter • Board composition, quality and competence of Promoting executive 03.2 Engagement outcomes the emerging “buy now, pay later” (BNPL) area of board members. by theme finance. In our view, this move requires sensitivity to pay aligned with social issues, access to finance and responsible provision • Succession planning for directors and 03.3 Collaborative engagements of credit. While we are supportive of the company senior management. performance 03.4 Escalation where initial entering the new business area, it is important that it engagement is not enough manages the broader social risks. Failure to do so could • Independence and expertise of audit committees. 03.5 Influencing companies through result in reputational controversies and potential risks • Structure and quantum of executive remuneration. proxy voting A number of our funds are invested in technology 03.6 Conflicts of interest to the business. Our discussion involved investment • Shareholder rights, especially in the context sectors and several investment teams and clients 03.7 Industry engagement professionals as well as members of the sustainability of takeover-related matters, capital issuance are based in the US. In 2021, we observed several and commitments team to gain an integrated perspective on the issue. authorities and other issues. notable technology companies attracting large The company stated that the size of the segment is now shareholder opposition to pay, evidenced by weak 04 small and that they are pursuing disciplined growth of 1. Overboarding at a technology company support for their advisory executive pay resolutions AllianzGI as a sustainable business under 15% of revenues. The business is not primarily Overcommitment by directors is a serious concern for (“say on pay”). We decided to focus on this issue as a credit company, but it is looking to grow steadily investors as it can compromise the quality of boards. a theme for engagement, recognising that many 05 in that market. With respect to systemic risks of the This is explicitly covered within our global Corporate technology companies are still run by their founders Appendix BNPL market, it outlined some of the key analytical Governance Guidelines which outline our position on in the US. This makes the sector an outlier in what tools it uses to ensure affordability via monitoring of what other commitments are acceptable for a board is otherwise one of the most dispersed ownership the funding mix at a customer level. We will continue to member. We engaged one US technology company over markets internationally. It means that assessing the monitor the issue via periodic calls. By sharing details a director who we were concerned was over-committed. quality of alignment between shareholders and of this engagement with our investment platform, In a subsequent call, the company updated us that management requires more nuanced analysis. we have raised an issue that may be relevant to other the director would be stepping down. We routinely companies. If this topic becomes more of a heightened raise the issue of overboarding with companies in our We selected a group of 10 companies for follow- market risk, we may evolve it into an engagement engagement meetings. We frequently observe positive up on the basis of their portfolio importance, theme to be applied to more companies via systematic outcomes, typically following extended pressure from the weakness of overall support for their “say on pay”, selection of targets. several shareholders pursuing the topic. and issues identified through previous engagements. Where we thought it would be beneficial, we reached Engagement topic: Fostering strong 2. P rofessionalisation of the board of out to set up a meeting to share our specific institutions through good governance a European small-cap improvement requests. To reach a wider audience, and transparency We started our engagement with a European we also published a paper in our “Stewardship Strong governance practices at investee companies are entrepreneur-driven small-cap in 2020. At the time we Principles” series to explain our position to companies. critical enablers of investment performance. With these voiced our concerns with respect to the size and set- This means that we are now better prepared for the practices in place, boards and management can better up of the board, which did not have any committees 2022 AGM season, more informed and – we believe address other topics that are highly relevant to the supporting it. We specifically suggested to add more – able to be more effective with our votes. business and investment case, including environmental financial expertise. In 2021, the company added a Addressing executive pay in the and social risks. In 2021 we engaged 160 companies financial expert to the board and established an audit US technology sector at least once on governance issues, underlining our committee and a remuneration and nomination Read here strong focus on a sound institutional set-up for our committee. We consider this outcome of our