WHEB Commentary

Seb Beloe

Orpéa: how healthy dialogue de-risks investment


While engagement is sometimes seen as ‘soft’ and intangible, without the hard metrics so common to much of investment practice, in our experience the value that it creates can be just as meaningful.

An important catalyst for greater shareholder engagement with companies has been the efforts by regulators in the UK, and to a lesser extent in other jurisdictions, to encourage shareholders to take a more active interest in the governance of businesses that they own. Initiatives, such as the UK’s Stewardship Code, have attracted a lot of attention, but for all this, active ownership is still more often the exception rather than the rule. This is particularly true in Continental European markets where UK practices are held up as being the most sophisticated in this regard. So much so in fact that WHEB, along with HSBC and the Forum pour l’Investissement Responsable organised a well-attended seminar (appropriately enough on Valentine’s Day) in Paris for French asset owners and managers to hear their Anglo-Saxon cousins opine on how engagement works in practice.

Anecdotally too, it is clear that engagement has yet to become established in investment markets more generally. One Swedish company that we wrote to explaining why we had voted against management at their AGM, drew an appreciative response from the company’s Chairman who pointed out that it was ‘the first time that [he had] actually received an explanation for the voting (sic) directly from an international shareholder’. And in France, so rare is investor engagement it seems, that a company we wrote to on a similar issue, assumed that we were an activist hedge-fund on the point of launching a hostile bid! Only after some soothing words from their broker did they realise that our intent was altogether more benign.

While engaged ownership from minority shareholders may still be uncommon in France, we have nonetheless developed a healthy dialogue with several companies in the country. One such company is Orpéa, a €2.3bn business operating retirement homes and rehabilitation clinics, listed on the Paris stock exchange.

Our initial engagement with the company focused on their management of business ethics risks at the company. Orpéa had screened poorly against a series of criteria that indicated high levels of business ethics risks in the business[i]. We sought a conversation with the Chairman, both to understand whether they recognised the risk factors that we had identified, and to assess how they mitigated these risks.

The outcome of this dialogue has been documented in our quarterly Voting and Engagement reports, but suffice to say that we were impressed with the degree of oversight that these issues receive from the management team and the rigor with which they manage them. What was particularly pleasing, however, was that Orpéa subsequently told us that our intervention had been used by the Chairman to highlight the importance of business ethics to the company’s broader management team. Furthermore, the company had also begun to use our framework to inform the company’s efforts to expand into new geographies such as China where business ethics issues are particularly pressing.

The importance of business ethics is clearly one area where we as investors are closely aligned with the attitudes of Orpéa’s Chairman and wider executive. We believe that our work has helped underline the importance of this issue within the business and is helping managers to implement more robust business ethics practices. There are, however, areas where we continue to have an on-going dialogue with the company such as on the level of board independence.

A ‘healthy dialogue’ does not mean we always agree with each other, but so long as exchanges remain respectful and open-minded, we believe that such engagement can help reinforce the importance of strong governance focused on long-term performance. This in turn can help companies achieve superior, long-term returns when compared with companies without such engagement.



[i] Risk factors include the geography of operations, the extent of recent mergers and acquisition activity, the degree of reliance on public sector customers as well as 14 other business characteristics.

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