Where appropriate and permitted by the board, the investing institution may take a direct equity or ownership stake in a publicly quoted, private or state-owned enterprise.
Such an investment may confer voting rights and permit the institution to influence directly certain activities of the organization in which it has taken part or, when there is full ownership, include representation on the board of a company or organization.
In such a situation, the board of the social security institution ensures that its representatives on the boards of companies represent the interests of the social security institution. To avoid potential conflicts of interest, an a priori alignment and compatibility between the social security institution’s objectives and the corporate objectives of the company is put in place.
- Where the board, management or investment committee lacks sufficient resource, expertise or governance budget to effectively carry out the roles implicit in such direct investment, the board, or the management or investment committee with board authorization, should seek expert advice or appoint external professionals to carry out these functions.
- Appropriate policies should be drawn up defining the nature of the involvement of personnel on the decision-making entities of the company.
- Verifying the alignment and compatibility of the social security institution’s objectives with those of the company should be part and parcel of the due diligence process of the board and management.
- The board must have a system in place to verify that its representatives on the boards of companies uphold the interests of the institution at all times.
- The board should have a policy to publish how its representatives on the boards of companies have exercised their votes.
- There should be a clear policy on the incomes and/or profits that board members are entitled to, if any, by virtue of their board membership in these companies.
- Where the investing institution undertakes such an investment, there should be due consideration of the risks involved, which may be more elevated than for other investments.
- Where the investing institution has the ability to influence the operational and management choices of the organization, a policy should be put in place setting out the aims and objectives in such situations. For example, this may include general principles regarding how the investing institution should vote in shareholder meetings.
- There should be a clear, written policy on the role that the institution should play on the boards of companies in which it has significant asset holdings.
- There should be a policy in place relating to the roles and responsibilities of investing institution personnel who sit on the board of such a company.
- The investing institution should publicly disclose direct equity or ownership stakes in publicly quoted, private or state-owned enterprises in accordance with local laws and regulations. The investing institution should also consider disclosing these holdings even if not required to by law or regulation when it has the ability to influence the operational and management choices of the organization or where failure to disclose such holdings may create the perception of misalignment of interest.