Business, Innovation and Skills CommitteeSupplementary written evidence submitted by Aberdeen Asset Management plc

Inquiry on The Kay Review of UK Equity Markets and Long-Term Decision Making

You were kind enough to invite me to give evidence on 26 February at which time I undertook to follow up on a number of points raised during the session, including Aberdeen’s corporate governance process, company visits we undertake and the number of investment professionals in our UK/European equity team.

Corporate Governance

Corporate governance and engagement are key components of our investment process in our active equity business. A review of the corporate governance practices of a potential investee company is part of our initial screening process and we only make an investment after we have conducted meetings with the management team. Once we have invested in a company, we hold regular meetings with management and board members to discuss strategic, operational, risk and governance matters and aim to visit companies in our core portfolios at least once a year but, in practice, it is often at least twice annually. Engagement is therefore embedded in our investment process which is reinforced with all voting decisions being taken by our investment managers.

By considering corporate governance as a key element of broader investment analysis, we avoid the box-ticking approach that ignores the particular circumstances of each company and prevailing market practice. With an equity investment process that emphasises investing for the long term, we feel that Aberdeen’s funds will benefit from the gradual value creation that will result from a company’s governance reforms over time.

One of the purposes of engagement is to encourage companies in which Aberdeen is an investor to strengthen their governance practices. Engagement with a company is most effective where it is built upon a long term relationship with the board and senior management, who are more likely to see Aberdeen as a credible and committed owner. Engagement is undertaken through a variety of formal and informal channels, ranging from participation in Annual General Meetings to private company meetings and formal correspondence. Engagement is complementary to both investment analysis and proxy voting because it allows Aberdeen to address specific governance concerns rather than simply divesting or voting against management without explanation. Where contentious issues arise in relation to motions put before a shareholders’ meeting, Aberdeen will usually contact the management of the company to exchange views and give management the opportunity to articulate its position. If this approach proves unsatisfactory we may express our concerns through the company’s advisers, discuss the issue with other shareholders or attend and speak at General Meetings.

Company Visits—Number Held

Analysis of company meetings		12 months to 30 Sept 2012	12 months to 30 Sept 2011
Regular company meetings lie at the core of our investment process and discussions may be wide ranging and cover strategic, operational and governance issues. Many of the meetings outlined in our Equity Engagement and Voting Report will have been initiated by Aberdeen but we welcome the increasing trend of chairmen, independent directors and chairmen of remuneration committees contacting us to discuss topical issues.	Asia ex-Japan Japan Emerging Markets North America UK Europe Total	1,760 248 714 710 369 315 4,116	1,659 229 749 592 413 176 3,818

Active Equity Investment

At the end of December 2012, we had over 95 active equity investment professionals, with 16 in the UK/European equity team. Globally, we have 2,045 employees, including over 500 investment professionals in total.

By way of background, I have also included copies of three documents we publish—the UK Stewardship Code, our Equity Engagement and Voting Report and Aberdeen’s Corporate Governance Principles together with an analysis of proxy votes for UK companies (in the 12 months to 30 September 2012, Aberdeen voted over 9,000 resolutions at more than 700 shareholder meetings).

Anne Richards
Chief Investment Officer
22 March 2013