Bondholder Engagement

Objectives of stakeholder engagement

The fundamental purpose of any engagement, irrespective of an asset class or the size of holdings, is to influence change.  The reasons for needing the change itself can vary and typically fall into one of the three categories: 

1. To bolster returns
2. To improve transparency
3. To achieve or control a non-financial outcome arising from or related to the company’s value chain

Equity holder engagement

Shareholders can vote because they are de-facto the owners of the business. In theory, they have a say in many aspects of strategy and its execution, including assessing the fitness of the company board and the adequacy of management’s skill.  In practice, the likelihood of achieving the desired outcome varies greatly because complex shareholder proposals can often hit roadblocks and lead to many years of difficult negotiations and lobbying.  

Bondholder engagement

It is a common misconception that, unlike shareholders, bondholders cannot participate in the company’s strategic developments because they do not explicitly have voting rights. Companies borrow in public or private markets more frequently than they raise equity capital.  Pre-issuance engagement in bonds bears a much higher intensity than most shareholder meetings because a successful funding depends on a quick turnaround and the management’s willingness to collaborate.