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  • pg 1
									Investor Responsibility Bulletin
Company Engagement and Voting Reports




January to March 2005
                                                                                                                                                                           A response to the supposed ‘governance backlash’           1


                                                                                                                                                       Insight’s response to the Operating and Financial Review                       2


                                                                                                                                                                                                   Company engagement summary         3


                                                                                                                                The potential financial implications of the proposed EU Chemicals Regulation (REACH)                  4


                                                                                                                                                                            Promoting good governance of health and safety            6


                                                                                                                                                                                                Trends in remuneration                7


                                                                                                                                                                          Update: The Myners Principles on activism                   8




Credit: 3rd photo from right: Colin Cuthbert / Science Photo Library.
                                                                                                                                                          Insight hosts meeting on ‘Business and the 2010 Biodiversity Challenge’     9


                                                                                                                                                                   Revenue transparency and the resource curse                        10


                                                                                                                                                             Just Pensions’ Construction and Building Materials Sector Note           12


                                                                                                                                                                 Corporate responsibility: from policy to performance                 13


                                                                                                                                                                               Can corporate responsibility cut red tape?             15




Views expressed in this document are those of Insight Investment and should not be attributed to our parent company HBOS plc.
                                                                                                                                                                                                   The Investor Responsibility team   16


                                                                                                                                                                                                          ...on the lighter side      16


                                                                                                                                                                     Insight Investment: a responsible investor                       16


                                                                                                                                                                                                      Company engagement report       17


                                                                                                                                                                        Noteworthy voting recommendations report                      25
Delivering Investor Responsibility
Welcome to the Spring 2005 issue of the Investor Responsibility       We welcome your feedback and the opportunity to discuss any
bulletin. This issue covers engagement with companies                 of the topics raised. Please feel free to email us at
conducted by Insight's Investor Responsibility team on behalf of      investor_responsibility@insightinvestment.com.
our clients between 1 January and 31 March 2005 to promote
more responsible business practice by both investors and
companies. We hope that you will find this issue of interest.

This bulletin is not a complete report of Insight's overall           Dr. Craig Mackenzie
engagement with companies, which also includes a large number         Head of Investor Responsibility
of meetings between company executives and Insight's fund
managers and analysts. These meetings are not currently the
subject of a public report.




                                                                                                                                           CORPORATE GOVERNANCE
   A response to the supposed ‘governance backlash’
   There has recently been much comment on how the UK                 listing authority. Thus, they apply to all companies,
   quoted sector has become unattractive to executive, and            irrespective of how they are financed. One would expect any
   indeed non-executive, talent. Writing in the Evening Standard      provider of business capital to want the comfort of an
   (22 February 2005), Anthony Hilton set out some of the the         appropriate oversight mechanism, to ensure that the
   difficulties of attracting chief executives. Earlier in January,   investment is suitably protected and used.
   Financial Times article on PWC’s annual global CEO survey
                                                                      Integrity of accounting is applicable equally to unquoted as
   highlighted the finding that ‘UK executives were more
                                                                      to quoted companies. We argued in our OFR submission (see
   inclined to regard governance, risk management and
                                                                      article on page 2) that large private companies should be
   compliance activities as a waste of time than managers
                                                                      obliged to prepare an operating and financial review, and,
   in any other country’.
                                                                      although the final regulations did not follow this line, there is
   This prompts two important questions: first, is it the case        no reason why owners of private businesses should not ask
   that talent is being discouraged from working in the quoted        for something similar.
   sector, and, second, do investors have a role to play in
                                                                      Hence, we do not concur with the view that the regulatory
   ensuring that this does not happen? It would be unfortunate
                                                                      burden is significantly greater on UK quoted companies.
   if the positive work that has been done by companies,
   investors and the government in improving the governance
   of UK-quoted companies has had the unintended                      The nature of the job
   consequence of driving away talent.                                Potential executive and non-executive appointees also show
                                                                      some trepidation related to the increasing perception that
   What might the disincentives be to working for, and
                                                                      the independent director’s role is that of policeman,
   principally being a board member of, a quoted, as opposed
                                                                      supervising compliance with regulation. Potential
   to a private-equity-backed, company?
                                                                      independent directors see this as a less interesting and
                                                                      rewarding role than that of a traditional non-executive –
   Is the regulatory burden really greater?                           and executives shy away from being policed.
   Let’s start with the supposed greater regulatory burden. The
                                                                      Although there is some legitimacy in this concern, we
   bulk of regulation – the take-over code, on health and safety,
                                                                      believe that independent directors play a vital monitoring
   environment, employment or, within our own industry, that of
                                                                      role, particularly through their membership of the audit and
   the FSA – applies equally to quoted and unquoted businesses.
                                                                      remuneration committees. It is vital in the UK’s board system
   Even when it comes to setting the rules that govern how            that all directors retain responsibility, not just for compliance,
   quoted companies operate in the UK, institutional investors        but also for strategy and its implementation.
   have generally supported a principles-based, voluntary
                                                                      One of the ways in which Insight promotes such an approach
   approach, as exemplified by the Combined Code. Companies
                                                                      is through integration of governance considerations into our
   were extensively consulted in drawing it up; they then agreed,
                                                                      investment process. We are not shy of asking executives
   voluntarily, to either comply with the code or explain why they
                                                                      questions on governance issues and, equally, in our meetings
   deviate from it. This is a much more flexible approach than the
                                                                      with chairmen and independent directors, we often go
   more burdensome, prescriptive regulatory approach. The only
                                                                      beyond traditional control issues. We have recently observed
   exception where listed companies face extra requirements is
                                                                      an increase in the number of annual board appraisals taking
   in the area of ownership rights (for example, companies are
                                                                      place, in large part due to the suggestion made to undertake
   required to consult shareholders about big deals, as required
                                                                      such appraisals in the Higgs review. Although initially
   in the ‘class tests’ of the listing rules).
                                                                      questioned by a number of directors, we believe that these
   Further, in the UK, directors’ responsibilities are set out in     appraisals are playing an important part in ensuring
   company law (which is currently being reviewed), not by the        appropriate board composition and behaviour.

                                                                                                                                                                  1
                               The degree of scrutiny                                              Conclusions
                               This leads us to what we believe may be a genuine concern           Overall, we believe that many of the arguments put forward
                               of those operating in the quoted arena – the level and nature       against being a director of a UK-quoted company are
                               of scrutiny, by the media in particular, of companies’ reports,     overstated. However, negative perceptions about the role,
                               including those relating to pay and rewards. Appropriate,           often based on misunderstanding of the regulatory burden
                               intelligent and informed comment on such issues would               and nature of the job, have created barriers.
                               surely not discourage good candidates from taking up
                               directorships. Unfortunately, remuneration remains an               As investors in the quoted sector, it is important that we do
                               emotive issue that sells papers and press coverage of it can        not put ourselves at a disadvantage relative to other
                               be simplistic and, on occasions, close to prurient. We are          providers of capital, either through our own demands as
                               therefore more sympathetic to directors’ reluctance to join         owners or by supporting inappropriate government
                               public companies on these grounds.                                  interference. Our role is to help create the conditions in
                                                                                                   which talented individuals are willing to take up directorships
                               An additional and related concern voiced by some directors          and to do their jobs effectively. To date, in our view, investors
                               is their fear that their earnings potential may be limited in the   and listed companies have worked well together – and
                               quoted arena, as investors, fearful of negative press               should continue to do so – and have thereby avoided the
                               coverage, may be unwilling to support potentially large             introduction of populist over-regulation of the kind that is
                               packages. However, in our experience, in industries where           causing so many problems in the US.
                               there is competition for talent from outside of the quoted
                               sector, investors have shown the same flexibility as they have
                               where there is international competition for talent. In such
                               cases, they have been willing to support the level of reward
                               necessary to attract the right person. The house building and
                               retail sectors are recent cases in point.
    PUBLIC POLICY ENGAGEMENT




                               Insight’s response to the Operating and Financial Review
                               This year, the publication of an Operating and Financial            I   Insight would like companies to report against several
                               Review (OFR) becomes mandatory for 1,300 listed UK                      KPIs that they believe to be particularly relevant to their
                               companies with financial years beginning on or after 1 April            business and to explain why these are important.
                               2005. This means that alongside the report and accounts,                However, we believe that it is too soon to develop
                               company directors will be required to provide their view of             prescriptive guidance on KPIs. We feel that the examples
                               all trends and factors that might affect their company’s                the ASB included in its Reporting Exposure Draft were
                               current and future development, performance and position.               premature. There is a significant risk that these indicators
                                                                                                       will be seen as a ‘mandatory’ set against which companies
                               In December 2004, The Accounting Standards Board (ASB)
                                                                                                       should report, rather than encouraging the development
                               issued a document entitled ‘Reporting Exposure Draft’ that
                                                                                                       of KPIs relevant to their business.
                               provides guidance on the general principles that should
                               underpin OFR reporting and examples of the key performance          I   Further, new risks and issues inevitably emerge over
                               indicators (KPIs) that companies could consider using.                  time (a good example is the increased investor focus on
                                                                                                       pension fund liabilities). The danger with prescriptive lists
                               Insight responded to the ASB’s draft report, expressing                 of indicators such as those in the implementation guidance
                               strong support for the UK Government’s decision to introduce            is that they tend to be difficult to extend or amend in
                               the OFR. We believe that the OFR, which requires companies              response to changing conditions. Thus, a more sensible
                               to present both financial and non-financial information,                approach, in our view, is to wait until the end of the first
                               will play a vital role play in helping shareholders to better           OFR reporting cycle to review whether there is a need for
                               understand companies, particularly how market and other                 the ASB to provide specific examples of KPIs.
                               factors are likely to affect their future performance. We made
                                                                                                   During 2005, Insight plans to hold extensive discussions with
                               several specific points:
                                                                                                   companies to clearly articulate our view of the nature and
                               I   We believe that OFRs should be bespoke documents                content of OFRs that we believe will be valuable for
                                   that explain each company’s unique view of its prospects        institutional shareholders.
                                   over the longer term. In our view, the OFR will fail if it
                                   engenders standard reports that use bland ‘cut and paste’
                                   language, as these will not give shareholders any new
                                   insight into companies’ performance or their views on
                                   critical business issues.




2
                                                                                                                                                             ENGAGEMENT STATISTICS
Company engagement summary
The table below provides an overview of the engagement                             On behalf of our clients, Insight holds shares in 80%
that the Investor Responsibility team conducted with                               of the companies in the UK FTSE All Share Index. Of those,
UK companies in our portfolios on behalf of our clients                            during this quarter, we engaged with 62 companies
from 1 January to 31 March 2005. A detailed list of all our                        representing 11% of our clients’ holdings by number
engagement with companies is available at the back of                              or 43.3% by value. In addition, we voted on 749
this bulletin.                                                                     resolutions at 84 company meetings.


ISSUE                    OBJECTIVE                                                COMPANIES ENGAGED WITH DURING THE QUARTER                          TOTAL

Biodiversity             To encourage companies to minimise their                 BG, Lonmin, National Grid Transco, Premier Oil                     4
                         impact on biodiversity and support
                         implementation of the Convention on Biological
                         Diversity.

Board of Directors       To ensure an appropriately constructed Board             Amvescap, Barclays, De Vere, Grainger Trust, Imperial Chemical     11
                         that is able to conduct effective stewardship of         Industries, Marconi, Marks & Spencer, National Grid Transco,
                         our investment.                                          Rio Tinto, Rolls-Royce, Vodafone

Board                    To ensure that Board remuneration levels are             Alliance and Leicester, AMEC, Barclays, BP, British Airways,       24
Remuneration             justified and that rewards are linked to corporate       British American Tobacco, BT, Cattles, Friends Provident,
                         and individual performance.                              Gallaher, HSBC Holdings, IMI, Intertek, J Sainsbury, John Laing,
                                                                                  John Menzies, Land Securities, National Express, Next, The
                                                                                  Peninsular and Oriental Steam Navigation Company, Senior,
                                                                                  Serco, Spirent, Taylor Nelson Sofres

Climate                  To encourage companies to effectively manage             British Airways, National Grid Transco, United Utilities           3
Change                   climate change risks.


Corporate                To establish and maintain investor confidence in         British Airways, BT, Carnival, Millennium & Copthorne Hotels       4
Governance -             the Board.
Miscellaneous

Corporate                To encourage improvement in the overall                  BG, BP, GUS, Lonmin, National Express, Shell Transport &           7
Responsibility (CR)      framework for the control, management and                Trading, Unilever
Governance               reporting of corporate responsibility in companies.

Customer-Related         To encourage companies to identify, evaluate             Cadbury Schweppes, J Sainsbury, Marks & Spencer, Somerfield,       5
Risks                    and effectively address customer-related risks.          Tesco

Health and Safety        To promote high standards of health and safety.          AWG, Barclays                                                      2

One Million              To encourage companies to adopt more                     Redrow                                                             1
Sustainable Homes        sustainable policies and practices.

Revenue                  To support development of an international               BP, Shell Transport & Trading                                      2
Transparency             revenue transparency mechanism through EITI -
                         the Extractive Industries Transparency Initiative.

Strategy                 To ensure that the company's strategy is fully           Rathbone Brothers, Shell Transport & Trading                       2
                         explained and is in the interests of its shareholders.



These figures were calculated as at 31 March 2005. They include Insight’s equity share holdings in companies listed in the
UK FTSE All Share Index, but exclude shareholdings in companies held by unit trusts and open-ended investment companies
(OEICs) not managed by Insight.

It is Insight’s policy to support good practice and challenge poor performance in relation to corporate governance and
corporate responsibility. Company presence on this table does not automatically indicate that Insight has a concern.
Source: Insight Investment




                                                                                                                                                                                     3
INVESTMENT RESEARCH
       AND ANALYSIS
                        The potential financial implications of the proposed
                        EU Chemicals Regulation (REACH)
                        Introduction                                                         Potential investment implications
                        Several years ago, the European Commission (EC) recognised           Insight originally identified the potential for REACH to
                        that data on chemical hazards and the chemical contents of           significantly impact on company valuations in 2003 (see
                        products on the EU market was lacking. It therefore proposed the     page 13 of our Spring 2004 Bulletin). We identified the main
                        Registration, Evaluation and Authorisation of Chemicals (REACH)      earnings implications of REACH as relating to: market loss
                        regulation, which takes a ‘no data, no market’ approach to           (i.e. it is possible that certain chemical lines would have
                        chemical control. The regulation also seeks to reverse the ‘burden   to be discontinued); input material loss (where certain raw
                        of proof’ of identifying chemical risks away from regulators,        ingredients or processing chemicals may no longer be
                        towards companies, who will have to demonstrate the safety of        available); its potential to stimulate innovation and create
                        chemicals in order to maintain their licenses to sell them.          new market opportunities, and; litigation risk (as REACH
                                                                                             proposes a greater level of public access to testing data).
                        REACH is still in draft form but expected to come into force in
                        2006. From that date, any chemical produced or marketed in any
                        quantity over one tonne per annum (tpa) in the EU will be subject    Insight’s research
                        to REACH. The regulation is expected to be progressively             During 2004, Insight conducted a survey of the European
                        implemented over 11 or more years, and will, ultimately, lead to     chemicals sector to assess the potential impacts of REACH
                        the creation of a complete inventory of the chemicals on the EU      (see page 17 of our Summer 2004 Bulletin). We concluded
                        market. With around 30,000 substances included in its scope,         that, with a few outstanding exceptions, many companies
                        the regulation potentially covers several hundreds of thousands      were unprepared for the introduction of REACH. In addition, it
                        of intermediates, over one million formulations and, conceivably,    was clear that the financial impacts of REACH were very poorly
                        well in excess of one million finished products.                     understood. As a consequence, Insight engaged the Centre
                                                                                             for Environmental Strategy (CES) to work with Insight’s
                                                                                             research analysts to develop a better understanding of its
                                                                                             potential impact.

                                                                                             CES’s research included a desk-based analysis of the product
                                                                                             ranges for the 19 chemical companies covered by Insight’s
                                                                                             UK and European analysts to estimate company-specific
                                                                                             REACH compliance costs for registration and increased
                                                                                             processing costs, as well as an assessment of company
                                                                                             preparedness to comply with the legislation.

                                                                                             Given the difficulty of assessing the economic effects of
                                                                                             such a complex regulatory regime, a set of simplifying
                                                                                             assumptions was devised. In particular, as REACH is in
                                                                                             draft stage, projected costs were assessed based on an
                                                                                             estimation of the most probable regulatory demands.

                                                                                             CES study results
                                                                                             The specific impacts of REACH will be highly dependent on
                                                                                             company product portfolios. Companies producing base
                                                                                             petrochemicals or gases will have the fewest number of
                                                                                             substances to be registered under REACH. Conversely, the
                                                                                             production of fine chemicals generally involves a high number
                                                                                             of substances at low tonnages, even when considering
                                                                                             research and development (R&D) exemptions. Specialty
                                                                                             chemical portfolios typically consist of a large number of
                                                                                             medium volume substances spread across diverse product
                                                                                             ranges.

                                                                                             Most of the surveyed companies produce between 500 and
                                                                                             2,000 substances that will be subject to REACH, with one
                                                                                             company producing around 6,000 substances. For most of the
                                                                                             companies surveyed, products exempt from the REACH
                                                                                             process, such as active ingredients in pharmaceuticals or plant
                                                                                             production products, typically correspond to 50-90% of
                                                                                             company sales.

                      Credit: Colin Cuthbert / Science Photo Library



4
Table 1: Projected REACH registration, processing and reformulation costs for 10 companies*

                       Air Liquid    Bayer      British     Ciba    Clariant   Degassa        DSM             Givaudan                 ICI                 Yule
                                                 Vita                                                                                                      Catto

Registration (M)          3.0        125.1       3.3        19.5     26.2         16.5         9.0               0.6                 22.0                     3.7

Processing (M)            4.5          0         29.7       71.6     62.7         71.3        61.5               0.1                 72.5                     9.1

Reformulation (M)          0           0         3.2          0        0           0            0                    0                     0                    0

Total cost/sales          0.1%       0.4%        2.4%       2.1%     1.1%         0.8%        0.9%             0.04%                 1.1%                  1.5%

Total cost/Earnings       0.9%       10.9%      66.7%       64.6%    26.2%        19%         20.8%             0.5%                 20.2%                 34.5%

Registration/R&D           3%        5.1%       62.6%       10.5%    9.1%         4.5%        1.9%              0.4%                 10.3%                 19.8%


Table 1 above illustrates the results of individual company         An overview of the categories developed for the qualitative company
estimated costs, based on ten companies involved in different       evaluations is presented in Table 2 below with the results for seven
chemical manufacturing activities. The projected costs are          companies representing a diversity of market exposures. Each
expressed here as the net present value over the total              company product portfolio is comparatively described on a 3-point
implementation period and are based on the most-probable            scale in terms of its relevance to that company’s business activities (+
regulatory demands and implementation scenario. An 8% annual        some relevance; ++ medium relevance; +++ high relevance).
discount rate is applied. The present day value of future cost is
compared to the company’s financial data for one year, yielding a   Table 2: Qualitative evaluations for seven
worst-case scenario of the potential financial impact that the
                                                                    companies*
regulation may have on a company’s cost base. As compliance
administration is anticipated to place significant demands on
company R&D resources, registration costs were also compared




                                                                                                                                                                    Yule Catto
                                                                                                                                               Givaudan
                                                                                                                           Degassa
                                                                                                                Clariant
to current yearly company R&D expenditures.




                                                                                                                                     DSM
                                                                                                       Ciba
Overall, the findings confirm the estimates of the EC and




                                                                                                                                                          ICI
environmental non-governmental organisations (NGOs) that the
total direct costs of REACH during implementation will typically    Product Portfolios
be around or below 1% of a company’s annual turnover. However,
the total registration and processing costs, when expressed as      Speciality + Industrial
                                                                                                      +++ ++               ++        ++         +         +++ +++
lump-sum figures in present day value, often represent between      Chemicals
20% and 35% of one year’s profits. Furthermore, from the
companies shown in Table 1, registration/R&D cost-resource          Fine Chemicals                     +        ++         ++        ++        ++         +           +
ratios may be as high as 10% in Ciba, Clariant and ICI, 20% in
                                                                    Medium & High Volume
Yule Catto and 63% in British Vita.                                                                   ++ +++ ++ +++                             +         ++          +
                                                                    Chemicals
It should be emphasised that REACH is in draft format and the
                                                                    Market Sales & Impact Categories
above figures are estimates based on a series of assumptions.
Moreover, the figures do not include the benefits to market
                                                                    Sales Outside Scope of
incumbents associated with, for example, the increased barriers                                        +         +          +        +++ +++ ++                       +
                                                                    REACH
to entry into chemicals manufacture that REACH represents.
However, if the above cost estimates prove broadly accurate,        Production inside EU              ++        ++         ++ +++ ++                      ++ +++
implementing REACH may significantly affect some companies’
cost base and their future valuations. REACH therefore appears      Low Sales Impact Category         +++ +++ +++ ++                            +         ++ +++
to pose a material risk to some of the companies surveyed.

As REACH will grant companies time periods of between three         High Sales Impact Category +++ +++ +++                           +         +++ +++ ++
and five years to register their products, company preparedness
to implement REACH, and their ability to secure early product       Preparedness
registrations, may prove crucial to those seeking to benefit from
changes in the EU chemical market. Several of the companies         Rating (Q2/04)
                                                                                                      High Med High Low Low Low Med
surveyed were found to be taking systematic organisational steps    (low, med, high scale)
to respond to REACH (e.g. establishing REACH governance
committees, creating central databases, reviewing product           The results shown in Table 2 illustrate the diversity of the
portfolios, screening dangerous substances and establishing         exposure of these companies. Consequently, the potential
new communication networks with suppliers and customers).           impacts of REACH are expected to vary considerably between
Conversely, several companies did not appear to either              companies, with Ciba and Degussa scoring particularly well
be very knowledgeable or concerned with REACH.                      relative to the other companies.



                                                                                                                                                                                 5
                           Combining the company data on the number and volume                                           The business impacts of implementing REACH are expected to
                           of chemicals produced, with the qualitative descriptions of                                   depend largely on a company’s ability to control or respond to
                           the company profiles and preparedness, enabled the final                                      the five factors set out in Table 3. Altogether, different business
                           overall assessment of business impacts. Transposed into a                                     impacts may have a ‘balancing’ effect within a company. For
                           10-point (qualitative) scale, the comparative business impact                                 instance, while Yule Catto may experience difficulties with its
                           indicators for seven companies are provided in Table 3.                                       ability to internalise costs, it appears better able to pass costs on
                           Increasing degrees of impact are indicated by a progression                                   to its customers, due its focus on specialist high-value products.
                           of shading from green to amber and then orange with lower
                                                                                                                         In comparison, Givaudan’s potentially limited ability to pass
                           scores indicating greater impact.
                                                                                                                         costs on may not prove financially significant, it will likely be
                                                                                                                         able to internalise costs due to its low cost/earnings ratio
                           Table 3: Aggregate business impact indicators*                                                and a large proportion of its market sales are exempt from
                                                                                                                         REACH. Insight will be closely following the response of




                                                                                                            Yule Catto
                                                                                           Givaudan
                                                                           Degassa
                                                                                                                         European companies to REACH, especially in terms of
                                                                Clariant

                           Business impact element

                                                                                     DSM
                                                         Ciba




                           (10 point scale)                                                                              preparedness and promoting chemical safety.




                                                                                                      ICI
                           Cost Internalisation          3        3          3        7    10          8         3       Conclusions
                                                                                                                         Overall, the analysis allowed Insight to assess the potential
                           Pass-on Costs                 9        8          8        7       4        7         7
                                                                                                                         financial impacts of the proposed REACH regulation on its
                           Overcome Market Obstacles     10       8        10         5       3        5         7       investments in the European chemicals sector. The analysis
                                                                                                                         indicates that the impacts of REACH are likely to vary
                           Realise New Markets           8        7          8        4       7        6         6       significantly between companies, showing that, unless
                           Maintain International                                                                        changes are made to the level of preparedness, REACH may
                                                         5        6          6        8       7        7         5       affect the profitability of some listed companies. However,
                           Competitativeness
                                                                                                                         the costs to the industry are still subject to change and the
                           * The figures presented in these tables are derived from a desk-
                                                                                                                         impact of REACH on company valuations will only become
                             based review of publicly available information. They have not
                                                                                                                         clear once there is regulatory certainty.
                             been supplied or confirmed by the companies in question.
    CORPORATE GOVERNANCE




                           Promoting good governance of health and safety
                           Insight has long been concerned with ensuring that                                            sufficiently strategic issue, it should report against relevant
                           companies meet the highest health and safety standards and                                    KPIs – something that recent changes to Company Law
                           adopt best-practice management, reporting and incentive                                       require for the 2005-6 financial year (see page 2 for a related
                           systems to enable them to do so. Indeed, we believe this to                                   article on the requirements of the new Operating and
                           be a critical element of good governance of corporate                                         Financial Review). The forthcoming HSE Corporate Health and
                           responsibility for many companies.                                                            Safety Performance Indicator (CHASPI) index may provide a
                                                                                                                         useful starting point for companies when considering which
                           In February this year, Insight hosted a conference in
                                                                                                                         KPIs to adopt. (See page 10 of our Summer and page 2 of our
                           conjunction with the Health and Safety Executive (HSE) and
                                                                                                                         Autumn 2005 Bulletins for more details on CHASPI.)
                           the Institute of Directors (IoD) to highlight the important issue
                           of the need for strong director leadership in Occupational                                    One question debated was the extent to which directors’
                           Health and Safety (OHS). A series of case studies of best                                     remuneration should relate to OHS performance. Insight put
                           practice in this area was presented that demonstrated both                                    forward the view that it would be appropriate to incorporate
                           the financial and OHS benefits of strong leadership. Anchor                                   elements of OHS performance into performance-related pay
                           Homes, the British Broadcasting Corporation, Debenhams,                                       agreements for directors in companies where OHS is a
                           The Environment Agency, Esso, Hilton UK & Ireland (part of                                    strategic risk to the business – particularly for executive
                           Hilton Group plc) and Zurich were companies highlighted in                                    directors and the board director with delegated responsibility
                           the case studies. (The full HSE case studies are available at                                 for OHS. However, we also believe that it would be
                           www.hse.gov.uk/corporateresponsibility/casestudies.) Key                                      inappropriate for independent non-executive directors to
                           findings were that strong leadership has resulted in greater                                  receive performance-related pay, of any kind, as this would
                           employee involvement in OHS matters and, crucially, a                                         compromise their independence. We also noted that
                           reduction in the number of accidents and injuries.                                            considerable care should be taken when considering what
                                                                                                                         kind of incentives to offer in this regard, as there are pros and
                           In its presentation, Insight chose to focus on the role of the
                                                                                                                         cons related to both output and outcome-related metrics and
                           board of directors with respect to promoting leadership on
                                                                                                                         considerable scope to create unintended consequences.
                           health and safety issues. We set out our view that wherever
                           OHS represents a significant risk for a company, we would                                     Insight will continue its dialogue with companies to encourage
                           expect the board to be able to demonstrate that it had                                        better health and safety governance. We also plan to support
                           actively considered and signed off on the company’s OHS                                       the HSE in disseminating ChasPI and to encourage companies
                           strategy, policy and key performance indicators (KPIs). We                                    to take up this valuable new tool to evaluate when it is available
                           also suggested that where a board considers OHS to be a                                       and to achieve high standards of performance on OHS.


6
                                                                                                                                  CORPORATE GOVERNANCE
Trends in remuneration
In August 2002, the UK Government introduced the                 Participation in long-term incentive plans (LTIPs)
requirement that companies seek annual shareholder               driven by short-term performance
approval for the directors’ remuneration report. Insight         Short-term cash and restricted share bonuses have a
welcomed this requirement, as it has improved shareholder        legitimate role to play in rewarding directors’ short-term
accountability by providing investors with the opportunity to    achievements. Insight believes that long-term incentive plans
vote to approve or reject remuneration schemes. Essentially,     (LTIPs) are the best instrument to support long-term value
shareholders’ principal concern is to ensure that directors’     creation within companies. However, LTIPs that measure
remuneration packages are aligned with the interests of          performance over a 3-year period must be properly designed
shareholders.                                                    and structured.
In the last few years, many companies have put forward           We have concerns with schemes where the size of the reward
inappropriate remuneration schemes. For example, in 2003,        in long-term plans is driven by short-term performance. In
shareholders rejected GlaxoSmithKline’s remuneration report      particular, we are not in favour of schemes in which the very
due to the proposed potential pay-out of £22 million to          participation of directors in the LTIP depends on performance
Jean-Pierre Garnier, over the 24-month contract period,          in a specific year, such as those recently put forward by
should he leave the company.                                     Bradford & Bingley and Intertek. This is because we believe
An integral part of Insight’s regular dialogue with companies    that this structure can lead executives to put too much
is consultation on proposed remuneration schemes                 emphasis on short-term performance and, in extreme cases,
ahead of annual general meetings to prevent such disputes.       encourage them to skew financial results to ensure maximum
In these consultations, we have seen a number of common          short-term bonuses and participation in the LTIP. We believe
themes emerging: (a) the use of non-financial targets            that the inclusion of executives in LTIPs should be automatic,
in remuneration packages; (b) basic salary increases;            such that even after a poor year, executives should have the
and (c) over-emphasis of short-term drivers of participation     opportunity to benefit financially from strong performance in
in Long-term Incentive Plans.                                    subsequent years. Given that LTIP pay-outs are based on
                                                                 directors’ performance over the previous three years, poor
                                                                 performance in any of the three years will automatically and
Linking remuneration to non-financial targets
                                                                 rightly reduce the total reward.
Companies are increasingly integrating non-financial
targets related to customer satisfaction, employee issues,
the environment, and health and safety into remuneration
                                                                 Conclusion
schemes. We welcome this trend, as we believe that               Five years ago, the remuneration proposals of many
non-financial performance in these areas can be key              companies were often inappropriate. In response, in recent
financial drivers and therefore important to the long-term       years, we have seen greater shareholder activism following
business success of companies. There are several                 the introduction of the requirement to vote on the
examples of this: BHP Billiton’s remuneration for executives     remuneration report, as well as increasing media interest in
incorporates key performance indicators on health, safety,       directors’ remuneration. The combination of these two
environment and employee; 15% of the short-term incentives       elements has had a pronounced positive effect on both the
of Vodafone’s directors are based on customer satisfaction       level of disclosure in remuneration reports and in
scores; BP has integrated health and safety targets as           remuneration policies themselves. Insight welcomes these
non-financial performance targets linked to real                 advances and continues to encourage, and take part in,
performance into its remuneration scheme.                        constructive and open dialogue between companies, their
                                                                 advisors and shareholders on remuneration schemes.
Basic salary increases
The median basic salary increase last year for all full time
executives in the FTSE 350 was 7.1% compared to 7.5% in
2003 and 9.7% in 2002 (in comparison, the average increase
in the retail price index for 2003 was 2.9%). Salaries are the
basic building blocks of remuneration; they also drive the
level of share option allocations. Insight is concerned that
basic salaries are continuing to increase against the market
index, at a time when a consensus is emerging among
institutional investors that directors’ remuneration should
be composed of a fixed basic salary and a larger variable
element. BT Group is one company that has taken this
approach by fixing base salaries and incentivising
directors through higher variable rewards. Insight
supports this approach.




                                                                                                                                                         7
    CORPORATE GOVERNANCE

                           Update: The Myners Principles on activism
                           In March 2000, the Chancellor of the Exchequer commissioned         Further, the Treasury’s review highlighted the importance of the
                           Paul Myners to conduct a review of institutional investment         role of pension fund trustees in ensuring that the Principles are
                           in the UK. One of the areas considered by Myners was                incorporated into the mandates of fund managers.
                           shareholder activism, where he recommended that trustees or
                           their fund managers engage with under-performing companies.         Reporting on activism
                                                                                               The original Myners review argued that a good practice
                           The ISC Principles                                                  model, backed up with disclosure on a ‘comply-or-explain’
                           In 2002, the Institutional Shareholders’ Committee (ISC)            basis, could be a powerful force for behavioural change.
                           (whose members are the Association of British Insurers, the         It therefore proposed that pension funds report annually
                           Association of Investment Trust Companies, the National             on how they implement the Myners Principles and explain
                           Association of Pension Funds and the Investment Management          the reasons for departing from any of them.
                           Association) issued its Statement of Principles on the
                                                                                               The review found that disclosure to date has been patchy
                           Responsibilities of Institutional Shareholders and Agents. The
                                                                                               and, in general, less rich and informative than originally
                           Principles were introduced in the hope that effective voluntary
                                                                                               envisaged. In part, this may reflect the relatively weak
                           shareholder action would prove regulation to be unnecessary.
                                                                                               collective pressure that fund members are able to bring to
                           The Principles require institutional shareholders to set out        bear on trustees. There are signs that pressures to act on the
                           their policy on activism, including details on how investee         Myners Principles are mounting, due in part to growing trade
                           companies are monitored, the policy for meeting with                union and media interest in corporate governance. Over time,
                           investee company boards and senior management, when                 partly in response to such pressures, commentary and
                           they might intervene, and their policy on voting. They also         disclosure is likely to improve. While the Government
                           require institutional shareholders to report to clients and/or      considers that there would be benefits in making progress
                           beneficial owners on these activities.                              more quickly, it has decided not to require schemes to
                                                                                               disclose their compliance with the Myners principles.
                           Review of progress                                                  Instead, it has proposed that trustees should, voluntarily,
                                                                                               issue an independently compiled report on implementation
                           In December 2004, HM Treasury published a review of
                                                                                               of the principles. The Government believes that this is a
                           the implementation of the Myners Principles. The review
                                                                                               more flexible approach than requiring mandatory disclosure.
                           (reflecting the findings of the recent reports from the
                                                                                               It hopes that the reports will contribute to providing an
                           Department of Work and Pensions ‘The Myners Principles and
                                                                                               informed commentary on the quality of compliance,
                           Occupational Pension Schemes - Volumes 1 and 2’) concluded
                                                                                               thereby helping to establish benchmarks of good practice
                           that progress on activism has lagged behind other key areas. It
                                                                                               on reporting, providing information to members and
                           also noted that the Government had considered legislating for
                                                                                               other stakeholders, and helping trustees to validate their
                           shareholder engagement, but, following discussions with the
                                                                                               decision-making procedures more effectively.
                           ISC, had agreed to allow shareholders to pursue activism
                           based on the ISC Principles and to assess progress, and the
                           need for regulation, in two years time.                             Insight’s view
                                                                                               Insight supports the voluntary approach proposed by the
                           In its report, the Treasury noted that the Government believes
                                                                                               Government. We recognise that a mandatory approach
                           that effective engagement requires informed consideration
                                                                                               could easily create a box-ticking environment aimed at
                           and judgement and cannot be achieved by ‘box ticking’
                                                                                               achieving formal compliance with prescriptive rules. We
                           undertaken simply to achieve formal compliance. Thus, the
                                                                                               would prefer to see useful, effective activism that results in
                           Government emphasised that investment managers should
                                                                                               better corporate governance. However, the investment
                           ensure that:
                                                                                               management industry cannot be complacent if it wishes to
                           I   The ISC Principles have been integrated into their              avoid further regulation; it must ensure that voluntarism
                               investment decision-making and asset management                 works – and is seen to work. This requires that the industry
                               processes.                                                      properly integrate the ISC Principles into investment decision-
                           I
                                                                                               making and management processes. It also requires that all
                               The quantity and quality of resources and people
                                                                                               fund managers, not just the small minority as at present,
                               committed to engagement are sufficient.
                                                                                               ensure that they commit sufficient resources, including
                           I   The level of qualitative reporting provided to clients and/or   suitably trained or experienced people, to engagement,
                               beneficiaries is sufficient.                                    and that they report in greater detail about their activism.
                           I   An explicit strategy is set out, elucidating the                Our experience with activism convinces us that it brings
                               circumstances in which they will intervene in a company,        substantial benefit to both companies and investors. It is
                               the approach they will use in doing so, and how they            therefore in the interests of individual fund managers and of
                               measure the effectiveness of this strategy.                     the interests of the industry and market as a whole, that the
                                                                                               ISC principles are fully adopted and effectively implemented.




8
                                                                                                                                           PUBLIC POLICY ENGAGEMENT
Insight hosts meeting on
‘Business and the 2010 Biodiversity Challenge’
                                                                         policy process, through the CBD and dialogue with
                                                                         national policy-makers. Similarly, policy-makers felt they
                                                                         would benefit from materials that describe companies’
                                                                         operations in different countries, to help them to engage
                                                                         with the private sector more effectively.

                            Elliot Morley MP                             The participants also suggested it would be valuable to hold a
                                                                         workshop at which conservation experts could explain which
                            UK Minister of State for                     geographical areas have ‘high biodiversity value’ so that
                            Climate Change and Environment               companies could focus their conservation efforts more
                                                                         effectively. The corporate representatives suggested that the
Biodiversity and business                                                development of a basic model for regional and landscape-
Insight believes that investors have an interest in seeking              scale decision-making and biodiversity conservation would
to influence the direction and form of public policy on a                assist them in setting priorities. Further, they indicated that
wide variety of financial and non-financial issues, including            guidelines on integrating biodiversity issues into supply chain
biodiversity. Our experience from discussions with companies             management would be valuable to those companies for which
in a range of sectors increasingly leads us to believe that their        this is an issue.
                                                                     I
adoption of best practice policies and management systems                Standard-setting. The development of a biodiversity
on sustainable development issues help to secure their                   standard or benchmark that could be incorporated into
license to operate and to protect their reputation. However, it          investment processes or adopted by influential business
is less clear how companies can engage in intergovernmental              organisations was proposed. It was agreed that Insight’s
processes that ultimately affect them, such as those of the              biodiversity benchmark for extractive industries could be
United Nations Convention on Biological Diversity (CBD).                 used as a basis for other benchmarks. Once generic
The CBD commits its 188 parties to conserve biodiversity,                biodiversity principles or standards have been established,
to use its components sustainably and to share, fairly and               these could then be used as a basis for developing sector-
equitably, the benefits arising from access to genetic                   specific guidance and standards.
resources. The treaty is implemented by governments,                 I   Mainstreaming. It was suggested that biodiversity be
through national regulations and policy, which can and do                embedded within existing corporate reports, in the context
affect companies’ costs and profitability in several sectors.            of other sustainability issues. Further, more work should be
                                                                         undertaken to explore how biodiversity could be integrated
Insight hosts international meeting with the CBD                         into annual financial and accounting disclosure rules,
In March 2005, Insight hosted a meeting with the Secretariat             investment indices, voluntary indices and reporting
of the CBD, the UK Department for Environment Food and Rural             standards, the accreditation process of key environmental
Affairs (Defra), the Brazilian Ministry of Environment, the              management mechanisms, and the investment decision-
Brazilian Business Council and the World Conservation Union              making processes of financial institutions.
(IUCN). The purpose of the meeting was to develop ideas for          I   Scaling up. The private sector could play a greater role in
engaging business in biodiversity issues, through the formal             addressing biodiversity loss, it was suggested, if industry
CBD process, or through voluntary business initiatives outside           leaders on biodiversity were to relay its importance and
that process, but in support of its objectives. The meeting              their knowledge of how to integrate it into business
was opened by Elliot Morley MP, UK Minister of State for Climate         practices to other companies. Small and medium-sized
Change and Environment, who expressed the UK’s commitment                companies were highlighted as those in need of such
to biodiversity and referred to the Government’s plan to achieve         encouragement, as many are not aware of their
a significant reduction in the current rate of global biodiversity       biodiversity impact or deny that they have one.
loss by 2010 – the target adopted by the CBD.                            In addition, it was proposed that good practice could be
                                                                         shared through industry associations, particularly using
Meeting recommendations                                                  case studies. It was also agreed that all Parties to the CBD
The meeting produced a wealth of specific suggestions as to              should ensure that state-owned companies are addressing
how companies, industry associations, investors, governments,            biodiversity issues adequately, as they frequently fall far
non-governmental organizations (NGOs) and the CBD itself                 behind private companies.
could work more effectively with the business community and          I   Offsets. Participants recommended further exploration
spread best corporate practice on biodiversity. Among the                of the mechanics of biodiversity offsets and their potential
principal conclusions and recommendations were:                          contribution to the 2010 target and referred to Insight’s
I   Awareness-raising. All parties would benefit from a                  recent work with IUCN on this subject (see page 14 of
    clear articulation of the business case for addressing               our Winter 2004 bulletin). They mooted the idea that
    biodiversity. The business community felt it would benefit           companies could make a joint commitment to ‘no net
    from further guidance as to how it might engage in the               loss’ to help meet the 2010 target.




                                                                                                                                                                      9
            The participants also suggested that a workshop would be            Conclusion
            valuable at which conservation experts could explain which
                                                                                The report from the meeting (see www.biodiv.org/doc
            geographical areas have ‘high biodiversity value’ so that
                                                                                /meetings/biodiv/b2010-01/official/b2010-01-03-en.pdf) will
            companies could focus their conservation efforts more
                                                                                be submitted to the CBD’s forthcoming meeting to review
            effectively. The corporate experts suggested that the
                                                                                the treaty’s implementation. The participants hope to meet
            development of a basic model for regional and landscape-scale
                                                                                again in Brazil to broaden the agenda and participation in
            decision-making and biodiversity conservation, involving local
                                                                                the debate. This should pave the way for a well-informed
            stakeholders, would assist them in setting priorities. Further,
                                                                                discussion by all the Parties to the CBD at their next
            they indicated that guidelines on integrating biodiversity issues
                                                                                conference in Brazil in March 2006 and help to unlock the
            into supply chain management would be valuable to those
                                                                                potential for business to help stem the unprecedented
            companies for which this is an issue.
                                                                                loss of biodiversity by 2010.
     NEWS




            Revenue transparency and the resource curse
                                                                                accusations of complicity in corrupt behaviour. These actions in
                                                                                turn may impair their individual or collective ‘licence to operate’
                                                                                (locally or globally), render them vulnerable to local conflict and
                                                                                insecurity and even, ultimately, compromise their long-term
                                                                                commercial prospects in these markets. However, at present,
                                                                                most companies claim that they are prevented from making
                                                                                their payments public by a combination of confidentiality
                                                                                clauses in their contracts, the commercially sensitive nature of
                                                                                this information and by the apprehension of host governments
                                                                                of greater public scrutiny. (Some companies have, however,
                                                                                published certain payments, with mixed results. See page 2 of
                                                                                our Summer 2004 Bulletin for more details.)

                                                                                We believe that greater transparency of both companies’
                                                                                payments to governments and of government revenue flows
                                                                                could contribute to achieving better governance in host
            Insight, along with other institutional investors, has              countries. However, we also acknowledge that transparency
            substantial investments in extractives companies that operate       alone is not sufficient; its effectiveness will depend on the
            in many fragile emerging economies. Despite – or as many            success of wider initiatives, such as those led by the World
            argue, because of – the enormous resource revenues they             Bank, IMF and other development agencies, to combat
            receive, such countries are often plagued by weak                   corruption and to build capacity in host countries to manage
            governance, poor transparency, crippling corruption and             their vast revenues effectively.
            devastating conflict. They are therefore often referred to as
            suffering from the ‘resource curse’.                                Investor support for EITI continues to grow
            The risk to companies operating in these countries can be           Insight believes that it is legitimate – and in their best interests –
            substantial. However, this risk can be ameliorated, and profits     for investors to support initiatives that strive to create more
            and investment returns enhanced, if steps are taken to create       stable, less risky operating environments. Thus, since October
            more stable, transparent operating environments, where the          2002, Insight has been supporting, along with other institutional
            rule of law, economic prosperity and social cohesion prevail.       investors, the UK-Government led Extractive Industries
                                                                                Transparency Initiative (EITI) to promote greater transparency,
                                                                                and thus greater accountability, in countries that derive
            The role of companies in sound development
                                                                                substantial revenue flows from natural resource extraction.
            It is common practice today for extractives companies
            to make legitimate, but mostly undisclosed, payments of             More specifically, the EITI aims to form partnerships with
            millions of dollars to governments in fulfilment of their           host governments and to facilitate the creation of processes
            contracts, in the form of signature bonuses, royalties, fees        within host countries to enable them to move towards
            and taxes. There is solid evidence that, unfortunately, in many     full revenue transparency. In each country, this will require
            countries, billions of dollars of revenues are diverted from        a unique mix of new legislation and regulation, institutional
            national budgets into private bank accounts. These funds are        capacity building, consultative processes with the private
            therefore not used to pay for urgently needed health and            sector and non-governmental organisations (NGOs), the
            social services, infrastructure development, and education –        development of reporting protocols and standards and,
            economic development is held back.                                  importantly, agreements on new ‘modus operandi’ with
                                                                                respect to corporate contracts for oil and gas extraction.
            It is argued that, by not disclosing such payments, companies
            are not only indirectly contributing to maintaining a high-risk     In May 2003, a group of 10 investors, including Insight,
            business environment, but make themselves vulnerable to             representing £466 billion under management, issued a




10
statement of support for the EITI, calling on oil, gas and mining      Despite these relatively low scores, Shell and BP were ranked
companies to be more transparent about the payments they               3rd and 6th, respectively. Both of these UK oil giants have
make to governments. Investor support has grown exponentially          been active supporters of EITI from the beginning.
since then. Today, 59 investment managers from around the
                                                                       STC states that it published the reports to contribute to the
world have signed up to the statement. In all, they manage
                                                                       debate about how companies should report their revenues to
$8.3 trillion of assets.
                                                                       host governments and to try to accelerate that process. STC
                                                                       and others in the PWYP coalition argue that while they are
Second EITI conference                                                 encouraged by EITI’s progress, they also want to see real and
On 17 March 2005, the UK Department for International                  rapid progress in the private sector towards payments
Development (DFID) convened a high-level conference of                 transparency and to ensure that the EITI does not become a
signatories and supporters of the EITI to review progress and          ‘talking shop’ and a substitute for real and rapid action.
explore next steps, attended by nearly 300 participants from
around the world, including outgoing World Bank president,             Next steps to promote transparency
James Wolfensohn, the Deputy Managing Director of the IMF
                                                                       Insight is very encouraged by the rapid progress being made
Takatoshi Kato as well as numerous government ministers,
                                                                       by the EITI to attract host government and company support
senior executives of global oil, gas and mining companies and
                                                                       for its aims. Further, we strongly welcome its work to drive
NGOs. Conference delegates – including the NGO contingent –
                                                                       forward bespoke processes in each host country to develop
more or less unanimously praised the progress EITI has made
                                                                       greater capacity to monitor and report on financial flows from
since the EITI was set up less than three years ago and
                                                                       natural resource extraction and standards by which to do so.
committed to continue to support it. Several countries and
companies announced their intention to join EITI, adding to its        While Insight has some reservations about the research and the
strength and momentum.                                                 evaluation criteria, we believe that STC’s reports on host
                                                                       government and company performance on transparency are
NGO proposes framework for measuring                                   timely and make a valuable contribution to the debate. We
corporate transparency                                                 hope that the proposed revenue reporting framework will be
                                                                       widely debated with companies and other stakeholders so as to
Save the Children (STC), the global children’s charity, and a
                                                                       reach a consensus about which revenues should be reported,
member of a broad, international NGO coalition pressing for
                                                                       and how. Regular benchmarking of progress by home
revenue transparency (called the Publish What You Pay coalition
                                                                       governments and companies towards achieving full revenue
- PWYP), used the opportunity of the conference to publish two
                                                                       transparency is also likely to stimulate action. We also hope to
new reports.
                                                                       see a similar proposal emerge to track the progress of host
One of the reports analysed how supportive of revenue                  country governments in achieving full public reporting of
transparency the legal and regulatory frameworks are of 10             financial receipts from revenue extraction.
OECD countries, home to many of the world’s largest oil and
                                                                       Insight will continue to actively support the formal EITI
gas companies. Canada emerged as the country with the
                                                                       process and play an active role in the wider debate on
strongest legislation on access to information, with a score of
                                                                       revenue transparency. We plan to meet with BP and Shell to
58%; the UK was second with a score of 49%.
                                                                       discuss their views on how they, and all extractive companies,
The second report proposed a framework of criteria by which to         might be encouraged to disclose more fully their revenue
measure corporate reporting of revenues and other information          payments to host governments, so as to support this strong
related to extractive operations and bribery and corruption.           global movement to lift the resource curse and bring greater
Insight strongly supports the principle of monitoring and              prosperity to millions of people in developing countries over
evaluating the progress and performance of companies on                the coming decades.
revenue transparency. Insight was, therefore, pleased to be
invited to join the multi-stakeholder Review Group for this project.    About the EITI
                                                                        The Extractive Industries Transparency Initiative (EITI) was
The performance of 25 global oil and gas companies,
                                                                        launched in September 2002. EITI aims to increase
operating in six selected resource-rich developing countries,
                                                                        transparency of transactions between governments and
was benchmarked against this framework. Companies were
                                                                        companies within extractive industries. Revenues from oil,
assessed on the amount of information they publish on three
                                                                        gas and mining companies should be an important engine for
elements of their activities:
                                                                        economic growth and social development in developing and
I   Corporate level anti-bribery and corruption policies.               transition countries. However, the lack of accountability and
                                                                        transparency in these revenues can exacerbate poor
I   Factual data on the nature and size of their extractive
                                                                        governance and lead to corruption, conflict and poverty.
    operations on a country-by-country basis.
                                                                        Increasing transparency and knowledge of revenues will
I   Publication of payments made to host governments.                   empower citizens and institutions to hold governments to
Talisman was the clear leader on this issue and ranked first            account. Transparency should also benefit developing and
with an overall score of 69%. The remaining 24 companies                transition economies by improving the business environment,
scored very much more poorly – 23 scored less than 30%,                 helping to attract foreign direct investment.
including Shell, which scored 29% and BP, which scored 27%.
                                                                        Source: www.eitransparency.org



                                                                                                                                          11
     NEWS

            Just Pensions’ Construction and Building Materials Sector Note

                                                                                     customer demand for sustainable products and certified
                                                                                     management systems risk losing contracts to their more
                                                                                     sustainably oriented competitors.
              The following is an excerpt from Just Pensions’ Construction
              and Building Materials Sector Note. The full note is available at      Human capital management
              www.uksif.org.                                                         Workers in the UK construction industry have a higher than
                                                                                     average prevalence rate of work-related ill health. A recent
              The note is the eighth produced by Just Pensions, with input
                                                                                     focus on health and safety (H&S) by leading companies has
              from Insight and other fund managers. The notes identify the
                                                                                     reduced fatal injuries. However, construction projects also have
              most business-relevant social, environmental and ethical risks
                                                                                     the potential to cause harm to users and the wider public,
              facing the sector. The purpose of the notes is to enable pension
                                                                                     e.g. in the rail sector. The use of subcontractors does not
              fund trustees to better understand risks that lie outside the
                                                                                     necessarily reduce the liability to the main contractor. In fact,
              realm of traditional financial analysis, but that may influence the
                                                                                     director liability for injuries and deaths at work can be a
              performance of their investments. It is hoped that trustees will
                                                                                     significant risk to a board. A poor H&S record can reduce a
              then ask questions of their pension fund managers about how
                                                                                     company’s ability to win contracts, particularly for PFI and
              they assess companies’ management of these important risks.
                                                                                     major infrastructure projects. There is a shortage of skilled
                                                                                     workers in this sector, from labourers to senior management.
            Sector structure                                                         The industry suffers from a poor image as a career choice;
                                                                                     recruitment of talented graduates, especially women, is a
              House-builders, UK and some US                         36%             significant challenge. The shift towards university rather than
                                                                                     apprentice-based training for school leavers, as well as the
              Construction equipment distribution,
                                                                     24%             risk of injury at work, may be contributing to the lack of skilled
              UK and Europe
                                                                                     labour for site work. Greater use of imported labour may relieve
              Building materials (heavy), UK & US                    21%             short-term shortages, but can increase H&S risks (numerous
                                                                                     languages and skills levels on one site can contribute to
              Building materials (light), global                     12%             accidents) and does not address long-term training and
                                                                                     recruitment problems.
              Contractors, global                                    7%
                                                                                     Access to future development opportunities

            The top 10 UK-listed construction and building materials companies,      In developed countries, the amenity value placed on
            by market capitalisation, at the date of publication of the Note were:   undeveloped land has risen to such an extent that gaining
            Wolseley, Hanson, BPB, Travis Perkins, RMC, Persimmon, Aggregate         permission for new quarrying, industrial plant facilities,
            Industries, Taylor Woodrow, Wimpey and Barratt.                          commercial or residential development is very difficult.
                                                                                     If planning permission is obtained, environmental permitting
                                                                                     requirements, social housing targets and regeneration of
            Key issues facing the sector                                             contaminated urban sites increases the cost of development
            More stringent UK environmental policy and regulation                    and may reduce profitability. Companies with good reputations
            Government policy is increasingly designed to internalise the            and expertise in operating within a restrictive planning system
            cost of environmental impacts of business. The introduction of           will have greater success in converting ideas into profitable
            the EU Emissions Trading Scheme in 2005 has set a price for              development opportunities. The construction of infrastructure
            excess carbon emissions and is expected to increase electricity          projects is often controversial due to their inevitable impact
            prices across the EU, driving up costs for heavy electricity users       on the physical environment. Local anger at lack of consultation
            in this sector. New UK taxes are raising the cost of virgin              and/or compensation can delay projects and generate negative
            aggregates and waste disposal in landfill. EU regulations to             publicity for the lead contractor. Companies in controversial
            increase energy efficiency in buildings could raise costs for            sectors who are able to manage stakeholder relationships
            house-builders but offer new markets to building materials               effectively and thereby reduce conflict and delays will save
            manufacturers with appropriate products. Key customers such              costs and endear themselves to clients. Investment in the local
            as the UK Highways Agency, government departments and                    economy can also improve the operating environment for a
            corporate clients are increasingly incorporating sustainable             contractor looking to work long-term within a community.
            purchasing requirements into the tender process, especially
            Public Finance Initiative (PFI) contracts. These often require
            evidence of an environmental management system and the use
            of recycled or sustainably sourced materials, as well as energy
            efficient building designs. Companies failing to respond to




12
                                                                                                                                             GUEST ARTICLE
Corporate responsibility: from policy to performance
                                                                      listed oil and gas companies. We found that, among the
                                                                      leaders – BP, BG, Shell –corporate commitments on CR are
                                                                      comparatively well developed. However, even among the
                            Andy Gouldson
                                                                      leaders, the management processes used to translate broad,
                            Deputy Director, Centre for               corporate commitments into site-specific standards are
                            Environmental Policy and                  either poorly developed or are not made fully transparent
                            Governance, London School                 within corporate reports. More particularly, the principles
                            of Economics                              established to guide site-specific standard-setting processes
 The following is a guest article by Andy Gouldson,                   are not clear and standards are commonly set through
 Deputy Director of the Centre for Environmental Policy               devolved decision-making processes where there is
 and Governance at the London School of Economics (LSE).              considerable discretion and little transparency. Thereafter,
 Views expressed are the author’s and do not necessarily              data on site-level performance levels is rarely available, and
 represent those of Insight.                                          where it is available, it is not provided in a common,
                                                                      consistent format by different firms. These factors make it
Introduction                                                          virtually impossible to compare and contrast performance, be
                                                                      it from company to company, from site to site, or over time.
Now that many UK companies have adopted corporate
responsibility (CR) policies, questions are inevitably being          Phase 2: Benchmarking corporate environmental
asked about the extent to which these policies lead to                performance
tangible changes in social and environmental performance.             In some countries, the absence of corporate reporting on site-
In other words, the procedural focus of many contemporary             specific performance is compensated for by the publication of
CR initiatives (where the emphasis is placed on management            Polluting Releases and Transfer Registers (PRTRs), which
systems, audit protocols, reporting frameworks and so on) is          provide site-level emissions data in a standardised format for
gradually being supplanted by a more substantive focus on             industrial facilities and other significant sources of emissions.
the social and environmental outcomes that companies                  As a result, they enable comparative measures of corporate
deliver in different operating locations. However, little reliable,   performance to be established. However, there are often
consistent information is made available by companies on the          problems with the quality and scope of the data and many
performance that they achieve. It is therefore difficult for          countries do not have PRTRs. The PRTRs that have been
investors and other stakeholders to assess whether policy is          established, most notably the US Toxic Releases Inventory (TRI)
indeed translating into good practice.                                and the EU European Polluting Emissions Register (EPER), are
Insight aims to promote research and the development and              often not entirely compatible. There are inconsistencies in the
use of tools that enable companies to achieve better CR               data and some potentially valuable data is commonly not
performance and, ultimately, better financial performance. In         reported. For example, data may be available for some but
late 2003, Insight and LSE established a collaborative research       not all years, data on incidents or breaches of compliance are
project to start to examine the more substantive or outcomes-         generally not included and there are only limited links with
oriented aspects of CR. The research had three main goals:            related data (i.e. on air quality and health).

1. To examine the management processes used to translate              Despite these limitations, the data that are made available
   broad corporate policies on CR into site-specific standards.       through PRTRs clearly have value. Using data from the EPER and
                                                                      the TRI, we found significant variations in the emissions of some
2. To examine whether it is possible to measure and compare           key pollutants from 250 refineries in the EU and the US. These
   site-level environmental performance.                              variations exist both across the range of refineries -– with dirtier
3. To investigate these issues in more detail through a case          refineries emitting at least five times as much as cleaner
   study of CR outcomes at the local level.                           refineries – and between the EU and the US – with refineries in
                                                                      the EU emitting more than twice as much as refineries in the US.
The research focused on the oil and gas sector, and particularly      At the local level, the research revealed strong correlations
on oil refineries, as these facilities are relatively similar and     between higher levels of emissions from refineries and lower
thereby offer the potential for meaningful comparison of their        levels of income, employment and population density in the
environmental performance. Two refineries in Durban, South            districts in which the refineries are located. Although some
Africa, were chosen as case studies, in part because they have        NGOs might be tempted to say that this proves that companies
been the focus of local campaigns relating to their perceived         adopt lower standards in poorer areas, it is important to
poor environmental performance.                                       emphasise that these findings do not reveal anything about the
                                                                      causal factors that might lead to these correlations.
Findings
                                                                      Phase 3: Local-level outcomes
Phase 1: Translating corporate policies into site-specific
practices                                                             The case studies revealed that emissions from the two
                                                                      refineries in Durban were towards the top of the range of EU
The first stage of the research was to review CR policies of          and US refineries. Moreover, the deleterious health effects on
firms in the oil and gas sector, focusing specifically on UK-         local people of these emissions are exacerbated because the


                                                                                                                                                             13
     refineries operate in a basin that restricts their dispersal at       To avoid confusion, and to demonstrate their commitment
     certain times of year. The research showed that that key              to acting responsibly, companies should adopt explicit
     concerns amongst the local community relate not to                    environmental policies and effective governance processes
     emissions per se but to their impacts on local air quality and        to ensure that these policies are implemented consistently
     public health. Although the refineries are not the only source        across the business. They should also publish clear,
     of emissions, they do contribute substantially to the poor air        consistent and comprehensive reports on performance,
     quality in the area. In the absence of effective government           including on emissions and outcomes at the site level. On
     regulation, local communities believe that the companies              these grounds, it seems that even the leading companies
     operating the refineries should take action to address these          have still got some way to go.
     problems, not least because of the companies’ corporate               From the public policy perspective, this research has
     commitments to CR. The local people feel that these do not            demonstrated that PRTRs can play an important role in
     translate into high standards of performance at the site level.       enabling stakeholders – at least those with the capacity to
     Fortunately, in the specific case of Durban, new regulations and      access and process the data – to make more informed
     local environmental improvements are being implemented.               judgements about corporate performance. Potentially, this
     However, this is not the case everywhere. This finding                gives them greater ability to encourage improvements in
     highlights the need for companies to address not only their           corporate environmental performance by providing them
     emissions in isolation, but also their broader impacts, for           with a basis for dialogue with companies. Moreover, this
     example on air quality and health in the local area, and to do so     information would allow them to benchmark companies
     more proactively and more consistently.                               operating locally and to put pressure on regulators to take
                                                                           action to reduce emissions.
     Conclusions and recommendations                                       If PRTRs were adopted in more countries, they would
     Our research indicates that there is substantial scope for            enable regulators and stakeholders to make more
     companies to develop more substantive, outcomes-based                 informed judgements about the performance of companies.
     approaches to their CR commitments. However, on the                   PRTRs that include a range of sources (e.g. transport,
     normative side of the debate on CR and environmental                  light industry) should also benefit companies by: (a) providing
     performance, more complex questions emerge:                           a single credible source of environmental information;
                                                                           and (b) putting industrial emissions into the context of
     I   Should companies necessarily adopt the same standards             total emissions within a region. Further, there is significant
         wherever they operate?                                            scope for national PRTRs to be made more compatible,
     I   If not, should they comply only with local laws?                  and all PRTRs could usefully be extended to include more
     I   What should they do if these laws fail to provide adequate        data on both the social and the environmental aspects of
         protection for local communities?                                 CR. One possibility is for the government of the US and the
                                                                           EU to set up an extended PRTR framework to encourage
     I   Should they then comply with certain minimum standards,           those firms that have their either have their headquarters,
         such as United Nations or World Health Organisation               or are listed on the stock markets within their borders,
         ambient quality standards?                                        to report site-specific data in a common format for all of
     I   What should a company do when it contributes to, but is not       their sites around the world.
         the sole cause of, a breach of those minimum standards?


      Insight’s view
      LSE’s research raises a number of important issues for                   US; and (b) (if the data can be obtained) include
      investors. Perhaps the most important is that investors need             assessment of whether correlations can be determined
      to look at on-the-ground performance to get a real sense of              with aspects such as ISO14001 certification or with
      the quality of policy implementation. The research also                  ownership of refineries.
                                                                           I
      indicates that many stakeholders do not see corporate                    Reporting: CSR reporting, in particular through
      disclosures as credible, and this lack of credibility is a barrier       contributing to the ongoing discussion with companies
      to effective stakeholder engagement. Finally, some of the key            and other stakeholders about the types of disclosures
      information required by stakeholders is not readily available.           that could be provided at the site level.
      Insight has met with BP, Shell and BG to discuss the results of      I   Public policy: Broad discussion about the question of
      the research. We also hope to meet with IPIECA – the                     whether there is room for the industry to sign up to a
      International Petroleum Industry Environmental Conservation              voluntary ‘EPER plus’, where standard emissions and
      Association.                                                             other relevant data is reported by all refineries and where
                                                                               oversight is provided by government(s) or an independent
      We expect that our research and discussions will catalyse
                                                                               third party?
      action in three areas:
                                                                           Finally, while we have focused on the oil and gas sector,
      I   Research: LSE’s research would benefit from being                we recognise that the research is applicable to most other
          broadened to: (a) include refineries outside the EU and          industry sectors. We will, therefore, also share the research
                                                                           with other industry sectors.



14
                                                                                                                                         OPINION
    Can corporate responsibility cut red tape?
 The business community is strengthening its demands for the         consent, corporate public disclosure. This body of regulation
 government to lighten the regulatory burden on business.            gains its purpose and legitimacy from fundamental ethical
 The latest development is the publication – with the support        principles about the need for companies to take due care,
 of the Treasury – of the Hampton Review, which responds to          respect rights, be honest, keep their promises, treat their
 those demands by proposing initiatives centred on the               customers and employees fairly, and be accountable for their
 application of risk-based regulatory enforcement. In                actions. If companies meet the requirements of these
 particular, the Review suggests that businesses with the            principles consistently and comprehensively – a challenge not
 poorest records of meeting regulatory requirements should           to be underestimated – they will automatically meet minimum
 face the strictest compliance regime, and those with the best       regulatory standards. In this respect, corporate responsibility
 records, the lightest. Insight supports this principle.             should be recognised as delivering compliance with the law,
                                                                     rather than ‘going further’ and ‘doing better’.
 It seems reasonable to suggest that the more effective
 companies are at meeting their corporate responsibilities           Clearly, there are some circumstances in which regulation does
 through self-regulation, the less need there should be for          not extend to all of these areas. Even in well-regulated
 heavy-handed government-led enforcement. As we will                 countries, law will often lag behind evolving public expectations
 argue, we believe this should mean that those who advocate          of companies. Many companies operate in or source from
 that the regulatory burden on companies be eased –                  countries that lack the capacity or the will to regulate business
 i.e. that red tape should be cut – should be natural allies         effectively. In such situations, whether motivated by risk
 of well-conceived and executed corporate responsibility             management or moral conviction, companies may – and
 programmes. But, in our experience, this not always the case.       already often do – choose to voluntarily set and meet corporate
                                                                     responsibility standards beyond those enforced by local
 Why? One reason, we suspect, is that corporate responsibility
                                                                     regulators. However, in heavily regulated economies like the UK,
 is often understood and presented, not least by government,
                                                                     the primary challenge is to uphold basic CR principles that
 as being those actions that take business beyond regulatory
                                                                     would deliver regulatory compliance, and not to go beyond
 compliance. As the DTI put it in its draft international strategy
                                                                     them in this way.
 on corporate responsibility in March 2004, ‘National
 legislation/ regulation performs an important role in               When companies do succeed in regulating their own
 establishing minimum levels of behaviour...It sets the base on      behaviour, we believe that they deserve a lighter touch from
 which CSR builds to go further and do better’. The European         regulators. If this approach were to be adopted, it is fairly
 Commission seems to define it similarly. However, from a            easy to see that the more companies fulfil their corporate
 philosophical point of view, the idea that corporate                responsibilities on a day-to-day basis, the more easily they will
 responsibility is primarily about going beyond regulatory           comply with regulation and the lighter the burden of
 requirements is wrongheaded. Corporate responsibility is            regulatory intervention they will deserve and should have to
 about meeting the legitimate ethical expectations of                bear. We suggest that when regulators conduct their risk
 stakeholders. In modern, highly regulated economies, many           assessment, they should look for evidence of robust policies
 of the most important public expectations about responsible         and good governance systems relating to corporate
 business practice are already the subject of regulation.            responsibility as a leading indicator of likely future
                                                                     compliance. Such an approach, we believe, could be a very
 To recognise this, one only has to think about the mass of
                                                                     effective way to reduce the regulatory burden on companies
 regulation relating to customer protection, product safety,
                                                                     in many areas and reward good business practice.
 workplace health and safety, discrimination and equality in
 employment, privacy, environmental pollution, planning


Hampton Review: summary of recommendations
The Hampton Review’s central objective is to raise both the quality and the effectiveness of the Uk’s regulatory system.
The Review believes it should be possible to achieve greater excellence in regulatory outcomes – but to do so substantially
more effectively, by:

I   Entrenching the principle of risk assessment throughout the regulatory system, so that the burden of enforcement falls
    most on highest-risk businesses, and least on those with the best records of compliance;
I   In particular, ensuring that inspection activity is better focused, reduced where possible but, if necessary, enhanced
    where there is good cause; at present, not only are necessary inspections carried out but necessary inspections are
    not carried out;
I   Making much more use of advice, again applying the principle of risk assessment;
I   Substantially reducing the need for form filling – in practice, most businesses’ most frequent and direct experience of
    regulatory enforcement – and other regulatory information requirements; and
I   Applying tougher and more consistent penalties where these are deserved.
Source: www.hm–treasury@gov.uk/budget




                                                                                                                                                   15
       THE INVESTOR
 RESPONSIBILITY TEAM


                          The Investor                                                           ...on the lighter side
                          Responsibility team




                          From left to right: Sarah Gillett, Steve Waygood,
                          William Claxton-Smith, Rachel Crossley, Rory Sullivan,
                          Kerry ten Kate, Craig Mackenzie, Jennifer Kozak.

                          Biographies of team members are available at
                          www.insightinvestment.com/responsibility/
                          team/team.asp.
             WHO WE ARE




                          Insight Investment: a responsible investor
                          Insight Investment is the asset management business of             We challenge companies where we consider their
                          the Halifax and Bank of Scotland Group (HBOS plc), one of          performance weak on environmental, social and ethical
                          the biggest names in UK financial services. We manage              issues and encourage them to operate according to global
                          over £79.2 billion (as at 31 March 2005) for clients and           business principles and high standards. We also vote on all
                          have ambitions to grow.                                            corporate governance matters according to our clients’
                                                                                             wishes.
                          We have a clear investment philosophy and process with
                          particular expertise in fixed income, equities and property.       We believe it is important for companies, including Insight,
                          We also have a strong commitment to Investor Responsibility        to be transparent and report regularly and fully on their
                          and Corporate Governance, which this bulletin illustrates. We      corporate responsibility activities. We therefore publish
                          manage investments on behalf of millions of retail customers       this bulletin quarterly, so that our clients and the broader
                          of the HBOS group and on behalf of in excess of 300                investment community can gain a better understanding
                          institutional clients, including corporate and local authority     of the work carried out on their behalf by our Investor
                          pension funds, charities and unions. Our Investor                  Responsibility team. Additional information about our
                          Responsibility policy commits us to actively encouraging           Investor Responsibility service and reports related to
                          companies to meet high standards of corporate governance           our work are available at
                          and corporate responsibility. Insight believes that it is in the   http://www.insightinvestment.com/corporate/responsibility.
                          long-term interests of both its clients and wider society that
                          investors fulfil this role.




16
Company engagement report*
ENGAGEMENT ACTIVITIES THIS QUARTER

 COMPANY         ISSUE                 OBJECTIVE OF                   ACTIVITY               ACTION THIS QUARTER         STATUS
                                       ENGAGEMENT

 Alliance and    Board Remuneration    To ensure that Board           Remuneration           Discussed proposed new      Insight expressed broad
 Leicester plc                         remuneration levels are        Schemes                remuneration scheme         support for the new
                                       justified and that rewards                            with the company.           remuneration plan to the
                                       are linked to corporate and                                                       Company Secretary.
                                       individual performance.
 AMEC plc        Board Remuneration    To ensure that Board           Remuneration           Discussed proposed          Insight anticipates supporting
                                       remuneration levels are        Schemes                changes to remuneration     the remuneration proposals at
                                       justified and that rewards                            scheme with the             the next AGM.
                                       are linked to corporate and                           company's advisors.
                                       individual performance.
 Amvescap plc    Board of Directors    To ensure an appropriately     Board Composition      Discussed Board structure   Insight supports the proposals
                                       constructed Board that is                             with the company.           that are to be put forward at
                                       able to conduct effective                                                         the AGM, which include the
                                       stewardship of our                                                                changing of the articles of
                                       investment.                                                                       association to separate the
                                                                                                                         roles of Chairman and Chief
                                                                                                                         Executive.
 AWG plc         Health and Safety     To promote high standards      Governance of          Hosted a conference on      Company attended conference
                                       of health and safety.          Health and Safety      the role of executive       jointly hosted with the Health
                                                                                             director leadership on      and Safety Executive, and the
                                                                                             Occupational Health and     Institute of Directors.
                                                                                             Safety.
 Barclays plc    Board of Directors    To ensure an appropriately     Chairman and Chief     Met with newly appointed    Meeting covered strategy,
                                       constructed Board that is      Executive              Chairman.                   finance and succession.
                                       able to conduct effective
                                       stewardship of our
                                       investment.
 Barclays plc    Board Remuneration    To ensure that Board           Remuneration           Discussed proposed new      Following consultation with
                                       remuneration levels are        Schemes                remuneration scheme         Insight and other investors,
                                       justified and that rewards                            with the company.           the company made
                                       are linked to corporate and                                                       amendments to the proposed
                                       individual performance.                                                           new remuneration scheme.
                                                                                                                         Insight anticipates supporting
                                                                                                                         the remuneration proposals at
                                                                                                                         this year's AGM.
 Barclays plc    Health and Safety     To promote high standards      Governance of          Hosted a conference on      Company attended
                                       of health and safety.          Health and Safety      the role of executive       conference jointly hosted by
                                                                                             director leadership on      Insight, the Health and Safety
                                                                                             Occupational Health and     Executive and the Institute of
                                                                                             Safety.                     Directors.
 BG Group plc    Biodiversity          To encourage companies to      Best Practice in Key   Sent final benchmark        Insight made a number of
                                       minimise their impact on       Sectors                report and company's        specific recommendations,
                                       biodiversity and support                              results and requested       including that the company
                                       implementation of the                                 meeting.                    communicate the results of its
                                       Convention on Biological                                                          biodiversity risk review; clarify
                                       Diversity.                                                                        policy commitments; prepare
                                                                                                                         an updated 5-year strategy;
                                                                                                                         consider establishing
                                                                                                                         partnerships with NGO
                                                                                                                         experts; articulate criteria for
                                                                                                                         case-by-case application on
                                                                                                                         when to proceed with
                                                                                                                         operations in sensitive sites;
                                                                                                                         and communicate a summary
                                                                                                                         of the components of its
                                                                                                                         policy and management on
                                                                                                                         biodiversity. Awaiting
                                                                                                                         response to follow-up letter.
 BG Group plc    Corporate             To encourage improvement       Performance            Held discussion with        Meeting with company to
                 Responsibility (CR)   in the overall framework for                          company.                    present Insight/LSE research
                 Governance            the control, management                                                           on the relationship between
                                       and reporting of corporate                                                        corporate policy and
                                       responsibility in companies.                                                      corporate performance.
 BG Group plc    Corporate             To encourage improvement       Performance            Held discussion with        Meeting with company to
                 Responsibility (CR)   in the overall framework for                          company.                    present Insight/LSE research
                 Governance            the control, management                                                           on the relationship between
                                       and reporting of corporate                                                        corporate policy and
                                       responsibility in companies.                                                      corporate performance.

* This report covers engagement with companies relating to significant governance and corporate responsibility issues conducted by
  Insight's Investor Responsibility team between 1 January and 31 March 2005. As such, it is not a complete report of Insight's overall
  engagement with companies, which also includes a large number of meetings between company executives and Insight's fund
  managers and analysts. These meetings are not currently the subject of a public report.

                                                                                                                                                             17
     COMPANY        ISSUE                 OBJECTIVE OF                    ACTIVITY             ACTION THIS QUARTER        STATUS
                                          ENGAGEMENT

     BP plc         Board Remuneration    To ensure that Board            Remuneration         Discussed proposed         Following consultation with the
                                          remuneration levels are         Schemes              changes to remuneration    Independent Adviser and
                                          justified and that rewards                           scheme with the            Secretary to the Remuneration
                                          are linked to corporate and                          company.                   Committee, Insight supports
                                          individual performance.                                                         the final proposal which
                                                                                                                          includes non-financial
                                                                                                                          performance targets.
     BP plc         Corporate             To encourage improvement        Performance          Held discussion with       Meeting with company to
                    Responsibility (CR)   in the overall framework for                         company.                   present Insight/LSE research
                    Governance            the control, management                                                         on the relationship between
                                          and reporting of corporate                                                      corporate policy and
                                          responsibility in companies.                                                    corporate performance.
     BP plc         Revenue               To support development of       Encourage Support    Requested meeting with     The company was ranked 6th
                    Transparency          an international revenue        of EITI Objectives   company.                   out of the 25 global oil and gas
                                          transparency mechanism                                                          companies surveyed in the
                                          through EITI - the Extractive                                                   Save the Children report
                                          Industries Transparency                                                         'Beyond the Rhetoric',
                                          Initiative.                                                                     published in March. Insight
                                                                                                                          requested a meeting with the
                                                                                                                          company to discuss the report
                                                                                                                          and its findings, as well as its
                                                                                                                          next steps on revenue
                                                                                                                          transparency.
     British        Board Remuneration    To ensure that Board            Remuneration         Discussed proposed         Following discussions with the
     Airways plc                          remuneration levels are         Schemes              changes to remuneration    Reward Manager, we
                                          justified and that rewards                           scheme with the            expressed support for the
                                          are linked to corporate and                          company.                   operating margin and
                                          individual performance.                                                         appropriateness of targets.
     British        Climate Change        To encourage companies to       Strategy             Held discussion with       Meeting with the company to
     Airways plc                          effectively manage climate                           company.                   discuss the current direction
                                          change risks.                                                                   of policy in relation to climate
                                                                                                                          change and the aviation
                                                                                                                          industry. The company noted
                                                                                                                          that it has publicly expressed
                                                                                                                          support for the inclusion of
                                                                                                                          the industry in emissions
                                                                                                                          trading and is presently
                                                                                                                          working on developing a more
                                                                                                                          detailed assessment of the
                                                                                                                          costs and benefits of
                                                                                                                          emissions trading.
     British        Climate Change        To encourage companies to       Strategy             Held discussion with       Insight was invited to make a
     Airways plc                          effectively manage climate                           company.                   presentation to the company's
                                          change risks.                                                                   Corporate Responsibility Board
                                                                                                                          on climate change and global
                                                                                                                          sustainability. Insight suggested
                                                                                                                          that the company conduct a
                                                                                                                          scenario-planning exercise to
                                                                                                                          look at the longer-term
                                                                                                                          implications of climate change
                                                                                                                          and to use this as a key input
                                                                                                                          into its strategic planning
                                                                                                                          processes. Insight also
                                                                                                                          suggested that, based on the
                                                                                                                          available data, active
                                                                                                                          participation in emissions
                                                                                                                          trading is likely to be the most
                                                                                                                          economically efficient way for
                                                                                                                          the industry to respond to
                                                                                                                          climate change.
     British        Corporate             To establish and maintain       General              Discussed a range of       Meeting with Chairman
     Airways plc    Governance -          investor confidence in the                           corporate governance       covered succession, finance
                    Miscellaneous         Board.                                               issues with the company.   and strategy.

     British        Board Remuneration    To ensure that Board            Remuneration         Discussed proposed         Insight supports the changes to
     American                             remuneration levels are         Schemes              changes to remuneration    the scheme and anticipates
     Tobacco plc                          justified and that rewards                           scheme with the            voting for the remuneration
                                          are linked to corporate and                          company.                   proposals at the AGM this year.
                                          individual performance.
     BT Group plc   Board Remuneration    To ensure that Board            Remuneration         Discussed proposed         Meeting with Chairman and
                                          remuneration levels are         Schemes              changes to remuneration    Senior Independent Director
                                          justified and that rewards                           scheme with the            covered board remuneration
                                          are linked to corporate and                          company.                   and succession planning.
                                          individual performance.
     BT Group plc   Corporate             To establish and maintain       General              Discussed a range of       Meeting with Chairman and
                    Governance -          investor confidence in the                           corporate governance       Company Secretary covered
                    Miscellaneous         Board.                                               issues with the company.   succession planning, strategy
                                                                                                                          and finance.




18
COMPANY          ISSUE                 OBJECTIVE OF                   ACTIVITY            ACTION THIS QUARTER         STATUS
                                       ENGAGEMENT

Cadbury          Customer-Related      To encourage companies to      Consumer Health     Met with company.           The company has a long-
Schweppes        Risks                 identify, evaluate and         and Obesity                                     standing, extensive and
plc                                    effectively address                                                            comprehensive approach to
                                       customer-related risks.                                                        addressing consumer health
                                                                                                                      issues, fully integrated with its
                                                                                                                      business strategy. It is
                                                                                                                      increasingly offering diet/low-
                                                                                                                      sugar and natural beverages
                                                                                                                      and has made changes to its
                                                                                                                      confectionery products. It has a
                                                                                                                      policy of not vending in primary
                                                                                                                      schools or advertising directly
                                                                                                                      to children under eight.
Carnival plc     Corporate             To establish and maintain      General             Discussed a range of        Meeting with Chairman/Chief
                 Governance -          investor confidence in the                         corporate governance        Executive and Chief Operating
                 Miscellaneous         Board.                                             issues with the company.    Officer covered succession
                                                                                                                      planning, board structure and
                                                                                                                      remuneration.
Cattles plc      Board Remuneration    To ensure that Board           Remuneration        Discussed proposed new      Insight has some concerns
                                       remuneration levels are        Schemes             remuneration scheme         about the basic salaries and
                                       justified and that rewards                         with the company's          unusual EPS (earnings per
                                       are linked to corporate and                        advisors.                   share) tests within the
                                       individual performance.                                                        proposed new remuneration
                                                                                                                      policy.
De Vere          Board of Directors    To ensure an appropriately     Board Composition   Discussed Board structure   Insight supports the
Group plc                              constructed Board that is                          with the company's          company's board structure,
                                       able to conduct effective                          advisors.                   following explanation provided
                                       stewardship of our                                                             by the company's advisors on
                                       investment.                                                                    board independence.
du Pont (E.I)    Health and Safety     To promote high standards      Governance of       Hosted a conference on      Company attended
de Nemours                             of health and safety.          Health and Safety   the role of executive       conference jointly hosted with
and Company                                                                               director leadership on      the Health and Safety
                                                                                          Occupational Health and     Executive, and the Institute of
                                                                                          Safety.                     Directors.
Friends          Board Remuneration    To ensure that Board           Remuneration        Discussed proposed          Following changes to the
Provident plc                          remuneration levels are        Schemes             changes to remuneration     proposed remuneration
                                       justified and that rewards                         scheme with the company     scheme, Insight expects to
                                       are linked to corporate and                        via the ABI.                support the resolution and the
                                       individual performance.                                                        forthcoming AGM.
Gallaher         Board Remuneration    To ensure that Board           Remuneration        Discussed proposed          Insight expressed broad
Group Plc                              remuneration levels are        Schemes             changes to remuneration     support for the remuneration
                                       justified and that rewards                         scheme with the             proposals to Investor Relations,
                                       are linked to corporate and                        company.                    however, it was not clear from
                                       individual performance.                                                        the scheme whether the total
                                                                                                                      shareholder return was
                                                                                                                      measure on a single currency
                                                                                                                      basis. Insight believes that this
                                                                                                                      should be a requirement of
                                                                                                                      remuneration schemes for
                                                                                                                      global companies. We welcome
                                                                                                                      the company's amendment to
                                                                                                                      the scheme that the total
                                                                                                                      shareholder return will be
                                                                                                                      measured on a single currency
                                                                                                                      basis.

Grainger Trust   Board of Directors    To ensure an appropriately     Board Composition   Discussed Board structure   Insight supports the
plc                                    constructed Board that is                          with the company's          company's board structure,
                                       able to conduct effective                          advisors.                   following explanation provided
                                       stewardship of our                                                             by the company's advisors on
                                       investment.                                                                    board independence.
GUS plc          Corporate             To encourage improvement       General CR Issues   Held discussion with        Insight told GUS it is broadly
                 Responsibility (CR)   in the overall framework for                       company about general       comfortable with its CR
                 Governance            the control, management                            CR issues.                  management and reporting.
                                       and reporting of corporate                                                     We recommended that the
                                       responsibility in companies.                                                   company collaborate with
                                                                                                                      other retailers sourcing
                                                                                                                      extensively from China to
                                                                                                                      develop shared solutions to
                                                                                                                      labour standards problems.
                                                                                                                      We alerted the company to
                                                                                                                      emerging concerns regarding
                                                                                                                      RFID and encouraged it to
                                                                                                                      report on its stakeholder
                                                                                                                      engagement activities.




                                                                                                                                                          19
     COMPANY          ISSUE                OBJECTIVE OF                  ACTIVITY             ACTION THIS QUARTER       STATUS
                                           ENGAGEMENT

     HSBC             Board Remuneration   To ensure that Board          Remuneration         Discussed proposed        Meeting with Chairman of the
     Holdings plc                          remuneration levels are       Schemes              changes to remuneration   Remuneration Committee,
                                           justified and that rewards                         scheme with the company   Company Secretary and
                                           are linked to corporate and                        via the ABI.              Finance Director. Insight
                                           individual performance.                                                      supports the changes to the
                                                                                                                        remuneration scheme and
                                                                                                                        expects to be able to support
                                                                                                                        the proposals put forward at
                                                                                                                        the AGM this year.
     IMI Plc          Board Remuneration   To ensure that Board          Remuneration         Discussed proposed new    Insight expressed broad
                                           remuneration levels are       Schemes              remuneration scheme       support to the Chairman of
                                           justified and that rewards                         with the company's        the Remuneration Committee
                                           are linked to corporate and                        advisors.                 saying that we are broadly
                                           individual performance.                                                      happy, but understanding that
                                                                                                                        the ABI had raised points of
                                                                                                                        detail that he should address.
     Imperial         Board of Directors   To ensure an appropriately    Chairman and Chief   Meeting with Chairman.    Meeting covered board
     Chemical                              constructed Board that is     Executive                                      structure, strategy, finance
     Industries plc                        able to conduct effective                                                    and remuneration.
                                           stewardship of our
                                           investment.
     Intertek         Board Remuneration   To ensure that Board          Remuneration         Discussed proposed new    Insight has expressed
     Group plc                             remuneration levels are       Schemes              remuneration scheme       concerns over the structure of
                                           justified and that rewards                         with the company.         the scheme, with LTIP
                                           are linked to corporate and                                                  participation being totally
                                           individual performance.                                                      driven by short-term
                                                                                                                        performance, which we feel is
                                                                                                                        questionable. The company is
                                                                                                                        aware of the potential draw-
                                                                                                                        backs of the scheme and
                                                                                                                        remains totally committed to
                                                                                                                        its use. In view of this, despite
                                                                                                                        reservations, we will support
                                                                                                                        the scheme.
     J Sainsbury      Board Remuneration   To ensure that Board          Remuneration         Discussed proposed new    Insight supports the proposed
     plc                                   remuneration levels are       Schemes              remuneration scheme       changes to the new
                                           justified and that rewards                         with the company.         remuneration scheme and
                                           are linked to corporate and                                                  anticipates voting in favour of
                                           individual performance.                                                      the remuneration report at
                                                                                                                        this year's AGM.
     J Sainsbury      Board Remuneration   To ensure that Board          Remuneration         Discussed proposed new    Meeting with Chairman,
     plc                                   remuneration levels are       Schemes              remuneration scheme       Human Resources Director and
                                           justified and that rewards                         with the company.         Investor Relations to discuss
                                           are linked to corporate and                                                  proposed long-term incentive
                                           individual performance.                                                      arrangements. Insight expects
                                                                                                                        to be able to support the plan
                                                                                                                        at the next AGM.
     J Sainsbury      Customer-Related     To encourage companies to     Consumer Health      Met with company.         The company continues to
     plc              Risks                identify, evaluate and        and Obesity                                    address these issues
                                           effectively address                                                          proactively. Health is a key
                                           customer-related risks.                                                      pillar of its newly-articulated
                                                                                                                        business strategy. The
                                                                                                                        company has already begun
                                                                                                                        several initiatives, including
                                                                                                                        new product labels, product
                                                                                                                        reformulation and a
                                                                                                                        programme to promote
                                                                                                                        exercise in primary schools
                                                                                                                        and will be rolling out others
                                                                                                                        during 2005.
     John Laing plc   Board Remuneration   To ensure that Board          Remuneration         Discussed proposed        Following the restructuring of
                                           remuneration levels are       Schemes              changes to remuneration   the company, Insight supports
                                           justified and that rewards                         scheme with the           the amendments to the
                                           are linked to corporate and                        company's advisors.       existing remuneration scheme.
                                           individual performance.
     John Menzies     Board Remuneration   To ensure that Board          Remuneration         Discussed proposed        Following discussions with the
     plc                                   remuneration levels are       Schemes              changes to remuneration   Chairman of the Remuneration
                                           justified and that rewards                         scheme with the           Committee and the company's
                                           are linked to corporate and                        company.                  advisors, Insight supports the
                                           individual performance.                                                      proposed performance share
                                                                                                                        plan and the proposed bonus
                                                                                                                        co-investment plan.
     Land             Board Remuneration   To ensure that Board          Remuneration         Discussed proposed        Insight supports the changes
     Securities                            remuneration levels are       Schemes              changes to remuneration   to the scheme and anticipates
     Group plc                             justified and that rewards                         scheme with the           voting for the remuneration
                                           are linked to corporate and                        company's advisors.       proposals at the next AGM.
                                           individual performance.




20
COMPANY        ISSUE                 OBJECTIVE OF                   ACTIVITY               ACTION THIS QUARTER        STATUS
                                     ENGAGEMENT

Lonmin plc     Biodiversity          To encourage companies to      Best Practice in Key   Sent final benchmark       Having raised its concern
                                     minimise their impact on       Sectors                report and company's       about the lack of policy and
                                     biodiversity and support                              results and requested      strategy on biodiversity,
                                     implementation of the                                 meeting.                   Insight welcomed the
                                     Convention on Biological                                                         company's new Biodiversity
                                     Diversity.                                                                       Strategy and Action plan. As
                                                                                                                      this is largely a statement of
                                                                                                                      commitment and an
                                                                                                                      information review, Insight
                                                                                                                      encouraged the company to
                                                                                                                      develop an updated strategy
                                                                                                                      and action plan including
                                                                                                                      operating principles,
                                                                                                                      performance criteria and
                                                                                                                      reporting indicators and
                                                                                                                      implementation guidelines;
                                                                                                                      sought clarification on the
                                                                                                                      company's risk management
                                                                                                                      and approach to realising its
                                                                                                                      "no harm" policy; and
                                                                                                                      discussed biodiversity offsets.
                                                                                                                      The company felt that the
                                                                                                                      concept of biodiversity offsets
                                                                                                                      is a good one which it intends
                                                                                                                      to explore in the future.
                                                                                                                      Awaiting response to letter.
Lonmin plc     Corporate             To encourage improvement       General CR Issues      Held discussion with       Responding to the company's
               Responsibility (CR)   in the overall framework for                          company about general      request for information on its
               Governance            the control, management                               CR issues.                 CSR documentation and
                                     and reporting of corporate                                                       website, Insight welcomed the
                                     responsibility in companies.                                                     greater range and depth of
                                                                                                                      information included in the
                                                                                                                      2004 sustainable development
                                                                                                                      report and 2005 roadshow
                                                                                                                      presentation posted on the
                                                                                                                      company's website,
                                                                                                                      particularly the establishment
                                                                                                                      of a committee on risk and
                                                                                                                      safety, health, environment
                                                                                                                      and community; the
                                                                                                                      introduction of a charter; and
                                                                                                                      systematic assessment of
                                                                                                                      existing practice on
                                                                                                                      sustainable development.
                                                                                                                      Insight encouraged the
                                                                                                                      company to report progress
                                                                                                                      against targets in 2005. The
                                                                                                                      company described its health
                                                                                                                      and safety results and Insight
                                                                                                                      asked for clarification on the
                                                                                                                      units for lost time injuries
                                                                                                                      frequency rates.
Marconi plc    Board of Directors    To ensure an appropriately     Chairman and Chief     Met with newly appointed   Meeting with the Chairman
                                     constructed Board that is      Executive              Chairman.                  and Senior Independent
                                     able to conduct effective                                                        Director to discuss board
                                     stewardship of our                                                               structure, strategy, finance
                                     investment.                                                                      and remuneration.
Marks &        Board of Directors    To ensure an appropriately     Chairman and Chief     Met with newly appointed   Meeting covered strategy,
Spencer                              constructed Board that is      Executive              Chairman.                  board structure, succession
Group plc                            able to conduct effective                                                        and board remuneration.
                                     stewardship of our
                                     investment.
Marks &        Customer-Related      To encourage companies to      Consumer Health        Met with company.          While the company has
Spencer        Risks                 identify, evaluate and         and Obesity                                       offered a number of health-
Group plc                            effectively address                                                              orientated ranges and
                                     customer-related risks.                                                          products for several years, it is
                                                                                                                      currently developing a
                                                                                                                      comprehensive strategy to
                                                                                                                      address consumer health and
                                                                                                                      obesity issues, which it views
                                                                                                                      as extremely important.
                                                                                                                      Information on the specific
                                                                                                                      components of the strategy is
                                                                                                                      not yet available.

Millennium &   Corporate             To establish and maintain      General                Discussed a range of       Meeting covered strategy,
Copthorne      Governance -          investor confidence in the                            corporate governance       finance, succession and
Hotels         Miscellaneous         Board.                                                issues with the company.   remuneration.




                                                                                                                                                          21
     COMPANY          ISSUE                 OBJECTIVE OF                   ACTIVITY               ACTION THIS QUARTER      STATUS
                                            ENGAGEMENT

     National         Board Remuneration    To ensure that Board           Remuneration           Discussed proposed new   Insight supports the changes
     Express                                remuneration levels are        Schemes                remuneration scheme      to the scheme and anticipates
     Group plc                              justified and that rewards                            with the company's       voting for the remuneration
                                            are linked to corporate and                           advisors.                proposals at the next AGM.
                                            individual performance.
     National         Corporate             To encourage improvement       CR Disclosure and      Held discussion with     Insight was invited to
     Express          Responsibility (CR)   in the overall framework for   Reporting              company about CR         comment on the company's
     Group plc        Governance            the control, management                               disclosure.              draft 2004 CSR report. Insight
                                            and reporting of corporate                                                     made a number of
                                            responsibility in companies.                                                   suggestions relating to the
                                                                                                                           provision of data on trends in
                                                                                                                           performance and emissions,
                                                                                                                           and ensuring consistency in
                                                                                                                           reported data from year to
                                                                                                                           year. Insight also suggested
                                                                                                                           that the report include a
                                                                                                                           discussion of the actions taken
                                                                                                                           in response to the comments
                                                                                                                           made by Transport 2000 in its
                                                                                                                           review of the 2003 report.

     National Grid    Biodiversity          To encourage companies to      Best Practice in Key   Sent final benchmark     The company's analysis
     Transco plc                            minimise their impact on       Sectors                report and company's     suggests biodiversity is not
                                            biodiversity and support                              results and requested    among its top five non-
                                            implementation of the                                 meeting.                 financial risks. Insight
                                            Convention on Biological                                                       recommended that the
                                            Diversity.                                                                     company communicate better
                                                                                                                           the basis for its risk
                                                                                                                           assessment and management
                                                                                                                           related to biodiversity, and the
                                                                                                                           company agreed to address
                                                                                                                           this. The company also has
                                                                                                                           experience with biodiversity
                                                                                                                           offsets in Australia and offered
                                                                                                                           to put Insight in touch with
                                                                                                                           experts working on the topic.

     National Grid    Board of Directors    To ensure an appropriately     Chairman and Chief     Meeting with Chairman.   Meeting covered board
     Transco plc                            constructed Board that is      Executive                                       structure, strategy, finance
                                            able to conduct effective                                                      and remuneration.
                                            stewardship of our
                                            investment.
     National Grid    Climate Change        To encourage companies to      Scoping                Held discussion with     Initial discussion. Company
     Transco plc                            effectively manage climate                            company regarding its    provided details of its new
                                            change risks.                                         approach to climate      climate change position
                                                                                                  change.                  statement and the measures it
                                                                                                                           is taking to implement its
                                                                                                                           commitments.
     Next plc         Board Remuneration    To ensure that Board           Remuneration           Discussed proposed new   Insight is supportive of the
                                            remuneration levels are        Schemes                remuneration scheme      non-controversial proposed
                                            justified and that rewards                            with the company.        new remuneration scheme
                                            are linked to corporate and                                                    that does not apply to
                                            individual performance.                                                        executive directors.


     Peninsular and   Board Remuneration    To ensure that Board           Remuneration           Discussed proposed new   Insight supports the proposed
     Oriental                               remuneration levels are        Schemes                remuneration scheme      new incentive arrangements
     Steam                                  justified and that rewards                            with the company.        and anticipates voting in
     Navigation                             are linked to corporate and                                                    favour of the remuneration
     Company                                individual performance.                                                        report at the AGM this year.
     (The)
     Premier Oil      Biodiversity          To encourage companies to      Best Practice in Key   Sent final benchmark     Insight made a number of
     plc                                    minimise their impact on       Sectors                report and company's     specific recommendations,
                                            biodiversity and support                              results and requested    including that the company
                                            implementation of the                                 meeting.                 communicate its risk
                                            Convention on Biological                                                       assessment process at
                                            Diversity.                                                                     corporate level; explain the
                                                                                                                           basis for prioritisation of its
                                                                                                                           work on biodiversity and
                                                                                                                           understanding of what is a
                                                                                                                           "sensitive site"; prepare a
                                                                                                                           clear policy and strategy on
                                                                                                                           how environmental impacts,
                                                                                                                           including those on
                                                                                                                           biodiversity, are addressed;
                                                                                                                           and set targets for
                                                                                                                           environmental performance
                                                                                                                           and report against these.
                                                                                                                           Awaiting response to letter.




22
COMPANY         ISSUE                 OBJECTIVE OF                     ACTIVITY             ACTION THIS QUARTER         STATUS
                                      ENGAGEMENT

Rathbone        Strategy              To ensure that the               Mergers,             Discussed upcoming          Meeting with Chairman and
Brothers plc                          company's strategy is fully      Acquisitions and     merger, acquisition or      Chief Executive covered the
                                      explained and is in the          Disposals            disposal with the           rationale of their proposed
                                      interests of its shareholders.                        company.                    transaction with Investec.
Redrow plc      One Million           To encourage companies to        Benchmarking         Continued engagement        Insight visited the company's
                Sustainable Homes     adopt more sustainable           House-builders       on sustainability issues.   headquarters and two building
                                      policies and practices.                                                           sites to learn about its new
                                                                                                                        Light Steel Frame (LSF)
                                                                                                                        prefabricated technology and
                                                                                                                        its new affordable housing
                                                                                                                        range using LSF technology,
                                                                                                                        called Debut. The homes will
                                                                                                                        meet the EcoHomes ‘Excellent’
                                                                                                                        rating. The first developments
                                                                                                                        will be built during 2005.
Rio Tinto plc   Board of Directors    To ensure an appropriately       Chairman and Chief   Meeting with Chairman.      Meeting covered board
                                      constructed Board that is        Executive                                        structure, strategy, finance
                                      able to conduct effective                                                         and remuneration.
                                      stewardship of our
                                      investment.
Rolls-Royce     Board of Directors    To ensure an appropriately       Chairman and Chief   Met with newly appointed    Meeting covered strategy,
plc                                   constructed Board that is        Executive            Chairman.                   finance, succession and
                                      able to conduct effective                                                         remuneration.
                                      stewardship of our
                                      investment.
Senior plc      Board Remuneration    To ensure that Board             Remuneration         Discussed proposed new      Insight expressed support for
                                      remuneration levels are          Schemes              remuneration scheme         the remuneration scheme and
                                      justified and that rewards                            with the company.           has supported the new
                                      are linked to corporate and                                                       scheme at the AGM.
                                      individual performance.
Serco Group     Board Remuneration    To ensure that Board             Remuneration         Discussed proposed          Insight anticipates supporting
plc                                   remuneration levels are          Schemes              changes to remuneration     the changes to the Executive
                                      justified and that rewards                            scheme with the             Option Plan at the next AGM.
                                      are linked to corporate and                           company.
                                      individual performance.
Shell           Corporate             To encourage improvement         Performance          Held discussion with        Meeting with company to
Transport &     Responsibility (CR)   in the overall framework for                          company.                    present Insight/LSE research
Trading         Governance            the control, management                                                           on the relationship between
Company plc                           and reporting of corporate                                                        corporate policy and
                                      responsibility in companies.                                                      corporate performance.
Shell           Revenue               To support development of        Encourage Support    Requested meeting with      The company was ranked 3rd
Transport &     Transparency          an international revenue         of EITI Objectives   company.                    out of the 25 global oil and gas
Trading                               transparency mechanism                                                            companies surveyed in the
Company plc                           through EITI - the Extractive                                                     Save the Children report
                                      Industries Transparency                                                           'Beyond the Rhetoric',
                                      Initiative.                                                                       published in March. Insight
                                                                                                                        requested a meeting with the
                                                                                                                        company to discuss the report
                                                                                                                        and its findings, as well as its
                                                                                                                        next steps on revenue
                                                                                                                        transparency.
Shell           Strategy              To ensure that the               Scenario Planning    Participated in scenario-   Insight was invited to
Transport &                           company's strategy is fully                           planning exercise.          participate in a 2-day expert
Trading                               explained and is in the                                                           workshop, hosted by Shell, to
Company plc                           interests of its shareholders.                                                    review Shell's Global
                                                                                                                        Scenarios. The purpose of the
                                                                                                                        meeting was to discuss the
                                                                                                                        political and other forces that
                                                                                                                        influence the global political
                                                                                                                        environment and,
                                                                                                                        consequently, impact on the
                                                                                                                        business environment of a
                                                                                                                        multinational petrochemical
                                                                                                                        business such as Shell. The
                                                                                                                        meeting also involved
                                                                                                                        discussion of the key social
                                                                                                                        issues about which Shell
                                                                                                                        needs to be informed.
Somerfield      Customer-Related      To encourage companies to        Consumer Health      Met with company.           The company is currently
plc             Risks                 identify, evaluate and           and Obesity                                      developing a comprehensive
                                      effectively address                                                               strategy and set of policies to
                                      customer-related risks.                                                           address these issues, building
                                                                                                                        on existing commitments and
                                                                                                                        initiatives. Work has begun to
                                                                                                                        evaluate the nutritional profile
                                                                                                                        of all products and
                                                                                                                        reformulate some as
                                                                                                                        necessary. More information
                                                                                                                        will be published in July 2005.


                                                                                                                                                           23
     COMPANY         ISSUE                 OBJECTIVE OF                   ACTIVITY             ACTION THIS QUARTER        STATUS
                                           ENGAGEMENT

     Spirent plc     Board Remuneration    To ensure that Board           Remuneration         Discussed proposed new     Insight expressed support to
                                           remuneration levels are        Schemes              remuneration scheme        the Group Compensation &
                                           justified and that rewards                          with the company.          Benefits Director and expects
                                           are linked to corporate and                                                    to support the new scheme at
                                           individual performance.                                                        the AGM.
     Taylor Nelson   Board Remuneration    To ensure that Board           Remuneration         Discussed proposed new     Insight supports the proposed
     Sofres plc                            remuneration levels are        Schemes              remuneration scheme        new incentive arrangements
                                           justified and that rewards                          with the company's         and anticipates voting in
                                           are linked to corporate and                         advisors.                  favour of the remuneration
                                           individual performance.                                                        report at this year's AGM.
     Tesco plc       Customer-Related      To encourage companies to      Consumer Health      Met with company.          The company does not plan to
                     Risks                 identify, evaluate and         and Obesity                                     formulate a new strategy or
                                           effectively address                                                            policies to address emerging
                                           customer-related risks.                                                        health concerns. It will do so
                                                                                                                          through existing programmes
                                                                                                                          and using management tools.
                                                                                                                          The company plans to
                                                                                                                          introduce new product labels
                                                                                                                          this year and is reviewing the
                                                                                                                          nutritional profiles of certain
                                                                                                                          categories and products.
     Unilever plc    Corporate             To encourage improvement       General CR Issues    Participated in            Insight encouraged the
                     Responsibility (CR)   in the overall framework for                        stakeholder consultation   company to substantially
                     Governance            the control, management                             on company's CR            change the CR section in the
                                           and reporting of corporate                          approach.                  annual report so that investors
                                           responsibility in companies.                                                   get a clear picture of how its
                                                                                                                          CR activities link to overall
                                                                                                                          strategy and how they add
                                                                                                                          value to the business. We also
                                                                                                                          asked the company to report
                                                                                                                          fully on managing labour
                                                                                                                          standards issues.
     United          Climate Change        To encourage companies to      Scoping              Held discussion with       Initial discussion. The
     Utilities plc                         effectively manage climate                          company regarding its      company described the
                                           change risks.                                       approach to climate        studies it has conducted on
                                                                                               change.                    the potential impacts of
                                                                                                                          climate change and the
                                                                                                                          business opportunities as a
                                                                                                                          result of its experience in
                                                                                                                          managing these issues. The
                                                                                                                          company has prepared a new
                                                                                                                          energy policy and associated
                                                                                                                          strategy that is presently
                                                                                                                          being discussed by the board.
                                                                                                                          Insight suggested that the
                                                                                                                          strategy include targets on
                                                                                                                          energy performance and
                                                                                                                          greenhouse gas emissions.
     Vodafone        Board of Directors    To ensure an appropriately     Chairman and Chief   Meeting with Chairman.     Meeting with Chairman, Head
     Group plc                             constructed Board that is      Executive                                       of Remuneration Committee
                                           able to conduct effective                                                      and Group Compensation and
                                           stewardship of our                                                             Benefits Director covered
                                           investment.                                                                    remuneration and board
                                                                                                                          succession.




24
Noteworthy voting recommendations report*
ABSTENTIONS, VOTES AGAINST MANAGEMENT, AND VOTES THAT WERE OTHERWISE CONTROVERSIAL

 COMPANY          EVENT   DATE        RESOLUTION   RESOLUTION   TEXT OF RESOLUTION         VOTE             COMMENTS
                                      NUMBER       TYPE                                    RECOMMENDATION

 Capital Radio    AGM     25-Jan-05   2            Ordinary     To approve the report of   Abstain          We do not feel that the
 plc                                                            the Remuneration                            explanation in the
                                                                Committee.                                  remuneration report justified
                                                                                                            the payment of maximum
                                                                                                            bonuses in a year when trading
                                                                                                            performance was
                                                                                                            disappointing.
 Euromoney        AGM     1-Feb-05    2            Ordinary     To approve the report of   Abstain          We are concerned with a
 Institutional                                                  the Remuneration                            number of issues, in particular,
 Investor plc                                                   Committee.                                  the continuation of the 24-
                                                                                                            month payment on severance.
 Lonmin plc       AGM     27-Jan-05   2            Ordinary     To approve the report of   Abstain          We are not fully satisfied with
                                                                the Remuneration                            the explanation for the ex
                                                                Committee.                                  gratia payment to the retiring
                                                                                                            director.
 Secure Trust     EGM     20-Jan-05   1            Ordinary     To approve the waiver      Against          Insight's policy is to
 Banking Group                                                  under Rule 9 of the City                    recommend voting against Rule
 plc                                                            Code.                                       9 waivers.

 Ultraframe plc   EGM     25-Jan-05   2            Ordinary     To approve the waiver      Against          Insight's policy is to
                                                                under Rule 9 of the City                    recommend voting against Rule
                                                                Code.                                       9 waivers.


*A complete report of Insight's voting recommendations is available at http://www.insightinvestment.com/responsibility/reporting.




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Issued by Insight Investment Management Limited. Registered office 33 Old Broad Street, London EC2N 1HZ.
Registered in England and Wales. Registered number 2111149. Authorised and regulated by the Financial Services Authority.

								
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