Each shareholder owns a part of the business that they invest in and have the same rights. This means that Prosperity is a stakeholder in the firms in which we invest on behalf of our shareholders and that it is our job to try to ensure that management works for the benefit of all shareholders.
This active shareholder approach can be expressed in three ways. We engage with the corporate management and core shareholders of the business to discuss issues of corporate governance and corporate finance. This is generally seen as a positive contribution and welcomed by the other stakeholders. Another form is where good corporate governance practices have been or are at risk of being breached. In such cases, we take action to resolve a potential conflict or to minimise the damage where a conflict has already arisen. This activity can take many forms from negotiations, appeals to the regulatory authorities or, in some cases, legal action. The third avenue of our active approach is working with the government, regulators and legislators to improve the overall investment climate.
An active investment approach means helping to make our companies more profitable and valuable. Prosperity is often a large minority shareholder in many of our Funds’ investee companies, which often helps us achieve these objectives. Prosperity refers to this investment approach as “constructive activism”.
Shareholder value is often created in companies that are in the midst of a transformation – be it a merger, corporate restructuring, change of control or management or an on-going sector consolidation. During such periods, it is important to safeguard good corporate governance standards and an active approach can a major contributor to enhanced shareholder value.
Whilst Russia is often associated with economic and political concerns, Prosperity’s experience is that the most serious risks to our investments relate to corporate governance. Actively engaging with the portfolio companies is an important tool to minimise and mitigate these risks. Recognising big improvements in corporate governance standards and practices can also be a major source of value generation for investors in Prosperity’s Funds. Investors in Russia and the Former Soviet Union cannot avoid corporate governance risks entirely, but Prosperity continues expend considerable energy on issues of corporate governance, which we believe works to improve the overall total returns for our portfolios and is an important part or our policy of responsible investment.
“Accessible here is a copy of Prosperity’s Activ Shareholder Case Study”
Prosperity believes that the quality of management is very variable in our investment universe and that this qualitative metric has a very significant impact on shareholder value. This is true anywhere, but it is our view that the variance and impact of management quality is greater in Russia than in many other markets. As a result, Prosperity places a considerable emphasis and importance on meetings with company management and core shareholders throughout the investment in order to evaluate their quality.
The rapid rate of change in Russia also necessitates constant monitoring as the market for corporate control is quite active and both core shareholders and management may change. These changes may sometimes work to dramatically increase the efficiency of a company and its shareholder value. Our long-standing participation in the markets allows us to often have formed a well-researched view of incoming shareholders and management based on their respective previous track records. It also gives us the opportunity to efficiently reach management to discuss strategy and plans for operational improvements.
“Prosperity places a considerable emphasis and importance on meetings with company management and core shareholders throughout the investment in order to evaluate their quality.”