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Should responsible gaming metrics be embedded in financial incentives?

On the 7th June 2019 we wrote about our engagement activities with UK gaming company GVC and our push for responsible gaming metrics to be embedded in senior management’s remuneration packages. Despite an on-going dialog, the process culminated on 18th November 2019 with the following email to the Chair of the remuneration committee expressing our disappointment in their lack of action on this important matter along with some suggestions about how such a plan could work.

Today, the 12th November 2020, GVC have announced a change in strategy with responsible gambling introduced as a key component of group wide financial incentives. This news is highly encouraging. Not only does this help safeguard our investment by ensuring this crucial risk factor is paramount in the minds of the company’s senior decision makers, but it is also a clear endorsement of our proactive approach to ESG within our investment process. We have long argued that environmental, societal and governance issues should be a consideration across all industries and not simply reserved for those sectors deemed “sustainable”. Our approach helps ensure the sustainability of all our investments particularly those considered by many to be contentious.

“Thank you for coming back to me with your proposals.

I must confess the lack of action on responsible gambling is disappointing and, I believe, a missed opportunity to contain this risk to the benefit of the PLC and shareholders.

Does GVC not already have the tools to set robustly measurable targets? For example, utilising the company’s “Changing for the Bettor” campaign where senior management are tasked on an annual basis to introduce new initiatives and strategies under each of the campaign’s seven pillars with success a contributing factor to annual bonus or LTIP. Such a system would clearly incentivise continued strong action regarding this issue, give shareholders and the committee identifiable targets to aim for while at the same time providing a robust defence toward the industry’s detractors. The statement that the Committee “will take into account actions taken by management in support of our responsible gambling agenda, as well as any significant negative events, when determining the appropriateness of formulaic bonus outcomes." Does not give shareholders (or indeed the committee) a benchmark to measure management actions against, will have a high degree of subjectivity and has no indication of quantum.

The issue of responsible gambling is highly likely to curb valuations within the gaming industry unless a proactive and robust approach is taken where remuneration packages play a central role. Unfortunately, the suggested proposals appear to be falling short on both these counts.

Thank you for taking our concerns into account when reaching your decision and hopefully this will remain firmly on the agenda.”