Case study: Engaging Chinese companies

It engages with approximately 300 companies on an annual basis, which equates to approximately 10% of their investment universe. Usually, they choose to focus on their largest holdings.

Anti-bribery and corruption is covered in almost all of the Ethical Council’s engagements and it often use engagement on anti-bribery and corruption policies and procedures systems as ‘a litmus test’, to reveal where a company stands on the issue of governance.

The Ethical Council chose four Chinese companies from the target list to engage with, because they were located in a region, which is increasingly expected to be held in portfolios.

A letter was sent to the respective chairman (not the CEO) of each company, with investor relations copied in. The chairman was considered the most appropriate representative of shareholders for Chinese companies even if a direct response from chairperson was considered unlikely.

The approach taken with the Chinese companies was proactive, although previous issues and allegations of corruption were taken into account. The Ethical Council began the dialogue by presenting the value of good compliance systems, as this increasingly resonates with companies across the globe.

Gaps in anti-bribery and corruption procedures and processes for the responsive Chinese companies were identified. This was particularly the case in areas to do with reporting.

Engaging with companies already embroiled in corruption issues was particularly challenging as they were more hesitant to dialogue, especially when focusing on legal issues. Even in the case of organisations who had no reported or alleged incidents, anti-bribery and corruption was found to be a sensitive topic.

Some anti-bribery and corruption improvements did take place over the engagement period in the two oil and gas companies, in both cases related to having a publicly-stated commitment to anti-corruption and having clear reporting lines from the board level to employees for example. This may have been because they had more experience in dealing with and meeting foreign shareholders, and handling the engagement process and investor expectations. Of the other two financial companies, one met with the lead investor and the other did not respond to the investor’s request for dialogue. Neither disclosed public information on their policies and practices that would reflect any change in score in the quantitative framework.

Although the engagements were conducted in English, having a Chinese speaking person on the call was helpful, and even increased the chance of success.