Big investors step up rebellion at company meetings

02 September 2017

The world's biggest investors rebelled more at company meetings globally this year compared with last year, as asset managers came under mounting pressure to tackle businesses over high pay, board diversity and bad management.

Eighteen out of 20 large investors, including BlackRock, the world's largest asset manager, Norges Bank, which runs Norway's oil fund, and Calpers, the US's largest public pension fund, cast fewer votes in favour of management recommendations at annual meetings in the year to the end of June compared with the previous year, according to Proxy Insight, the data provider.

Companies including GAM, the Swiss asset manager, AstraZeneca, the Anglo-Swiss drugmaker, Burberry, the fashion house, and Wells Fargo, the US bank, all suffered shareholder revolts this year.

The rebellion by fund houses comes as regulators and politicians around the world increasingly scrutinise the relationship between companies and their shareholders. Fund houses have been criticised repeatedly for failing to hold companies to account on excessive executive pay, a lack of gender diversity and inaction on climate change.

Paul Lee, head of corporate governance at Standard Life Aberdeen, the UK's largest listed fund house, said asset managers are more willing to take a stand against company management because of the growing emphasis on their role as "stewards of investor money".

"There are more questions being asked by more clients about how we vote. [AGM votes] are a client asset like any other and we as a fiduciary have a duty [to use them properly]. We don't look to have row with companies, but if there is something we disagree with, we have to reflect this in our votes," he said.

"The focus on stewardship is only going to increase. It is a fundamental way in which fund managers do the right thing by their clients and by the financial markets as a whole."

However, the Proxy Insight data shows that despite growing resistance from asset managers, many investors voted with management at least 90 per cent of the time.

David Pitt-Watson, a corporate governance expert who was formerly at London Business School, said asset managers are taking voting at annual meetings more seriously than 20 years ago, but they could do better.

"Some progress has been made, but asset managers are still failing to do a reasonably good job for shareholders like you and me. It is your and my money in our pension funds that have voted through [controversial measures such as] all these executive bonus pay packages that we all think are wrong," he said.

"Fund managers are not taking the job as stewards as seriously as they ought."

Cliff Weight, director of ShareSoc, the body representing individual shareholders, added that fund managers have allowed corporate governance scandals to happen under their watch, including Tesco's accountancy problems, rather than voicing dissent at annual meetings.

"It is the stewards who have the power [to hold companies to account at AGMs] and they have allowed these things to happen. The engagement process isn't working. Asset managers have been too short term for too long in their approach," he said.

Investors are expected to come under greater pressure to hold companies to account in the coming years. Last week, the UK government released a package of corporate governance reforms aimed at improving standards at listed companies. This includes the world's first public register of listed companies that have faced pay rebellions, as pressure mounts on asset managers to rein in executive pay.

Mr Lee said Aberdeen, which merged with Standard Life last month, voted against or withheld votes on pay at around half of US companies in 2017. The Proxy Insight data showed Aberdeen voted against company management proposals more this year compared with last year.

Schroders, the UK-listed fund house, PGGM, the Dutch investor, and State Street Global Advisors, the third-largest asset manager in the world, also supported fewer management proposals this year at annual meetings.

Jessica Ground, global head of stewardship at Schroders, said asset managers typically invest in companies and management teams they believe in.

"But that doesn't mean it is a blank cheque, and we will continue to hold them to account on pay and shareholder rights, which is a crucial aspect of the investment process," she said. Calstrs, the US public pension fund, and APG, the Dutch pension fund, were most likely to vote against company management, the data shows.

Catherine Howarth, chief executive of Share Action, the investor rights group, said there was "significant" room for improvement in how asset managers dealt with companies, particularly around governance and environmental issues that could have long-term effects on share prices.

"As an active manager you can like a company, want to invest in it, and still have a real beef with its board and management," she added.

 

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