By Toby Belsom, Head of Research
As we enter the peak of the AGM season, institutional investors will be frantically completing votes on AGMs in the UK and overseas. Many will have thousands of boxes to tick, with advisers on hand to help them. Which way those boxes are ticked should have a big influence on corporate behavior on issues as diverse as the gender pay gap, climate change, board structure, remuneration, and share buybacks.
The importance of the votes has been put in the spotlight at the recent AGMs of Persimmon and Carillion. In 2012, Persimmon’s shareholders nodded through a pay package for their senior executives. I suspect that few read or considered the potential implications of the unjustifiable bonus packages now being awarded to the senior board. This is made more embarrassing by the company’s lack of involvement in the Living Wage, and the consequent large pay gap across the organisation. At Carillion’s AGM in 2017, boxes were ticked that re-elected the auditors, despite their tenure of over ten years. So, ticking the boxes does matter a great deal – and savers, the press, and government are quite rightly taking an increasing interest.
In the UK, thanks to the Investment Association public register, it is now easy to identify controversial votes (where over 20% of shareholders voted against management). Utilising this information, ShareAction’s recent report looked a selection of fund managers’ voting patterns based on a list of controversial resolutions. The fund managers surveyed all had big charity mandates or clients – they are a group of investors and trustees who often have a specific interest in responsible investment and corporate governance. A lack of support for these controversial votes is particularly surprising from this group of fund managers. Members of Charities Responsible Investment Network, for whom this report was commissioned, are particularly interested in voting patterns.
A key finding is that charity fund managers are conservative voters. Of the 21 controversial resolutions reviewed, totaling 218 votes, only 50% of the votes cast were against management. The rate of votes against management falls to 36% when you exclude particularly controversial votes such as Exxon Mobil (climate change), Crest Nicholson (remuneration) and William Morrison (remuneration). It should come as no surprise that the charity asset managers are generally friends of management.
The way investors cast their votes at company AGMs can have a huge impact on society and the environment
We looked at a small sample of governance policies and tried to compare outcomes – which way fund managers voted. Fund managers’ corporate governance polices are often close copies of the PSLA‘s or the Investment Association‘s guidance. Despite these similarities, some fund managers seem to have more ‘rebel genetics’ than others. In our report, Aviva Investors, AQR, BMO, Liontrust, CCLA, Martin Currie, Mondrian, Ruffer, and Newton all voted against management at our selected controversial resolutions in over 60% of resolutions.
However, some asset managers seem to lack this rebellious gene. Aberdeen, Henderson, AXA, Standard Life, and Jupiter all supported management in 50% or more of these controversial resolutions. Our sample was small, but in light of this research it is both justifiable and important for any asset owner or saver to question how and why their asset manager’s record differs from that of their peers, and which box they ticked on these key controversial votes.
Many asset managers have a record of fence-sitting. Almost 10% of our selected fund managers’ votes at controversial AGMs were abstentions. Newton Asset Management was one of the few asset managers who had a ‘get off the fence!’ policy, stating that they “rarely register abstentions, given our belief that these give a confusing message to management or may be interpreted wrongly.” Asset owners and savers should be concerned about the mixed messages that abstentions and ‘special exemptions’ to voting policy give, especially when they are used to avoid following governance policy. Whether well-considered strategy or laziness, abstentions and special exemptions should be questioned and challenged by asset owners.
Our report finds that some asset managers are more rebellious than others. Those who side with management on controversial resolutions should explain their rationale, any abstentions, and provide transparent voting records.
Despite the lower number of binding pay resolutions up for the vote in the 2018 AGM season, it will remain a hot topic. We reviewed controversial resolutions on board pay at Informa, Pearson, Morrisons, Entertainment One, AstraZeneca, Persimmon (2012 LTIP) and Carillion. The pattern was mixed: out of the ten resolutions on remuneration, Aberdeen supported management in the highest number (six), followed by Henderson (five) and Jupiter, Royal London, Standard Life, and BMO (three each). This is a disappointing pattern from some of the UK’s leading institutional investors.
The industry-wide disparities identified in our report need to be addressed. We identified three key areas to ask your asset manager about:
- Explaining rationales
The voting patterns outlined in the report and above may be justifiable, but many institutional fund managers provide limited (if any) rationales for voting decisions, and do so in a sporadic manner. Industry bodies such as the Investment Association or BEIS should review this position and require fund managers to provide adequate rationales for controversial resolutions, enabling comparability across institutional fund managers.
- Explaining special exemptions and abstentions
Many fund managers explain voting decisions that are against their own governance and proxy voting policy as a ‘special exemption’. At some fund managers, these exemptions seem to be used liberally and with little further explanation. Abstentions may also be used to evade voting policy. Fund managers should be clear and transparent about their policy relating to special exemptions and/or abstentions.
- Providing transparent voting records
Institutional fund managers who do not provide a record of their votes in a reasonable time after the AGM season are now out of step with industry practice. Disclosure also needs to be functional. A number of institutional fund managers do publish proxy voting decisions, but in a format that makes it extremely difficult to identify a specific voting decision. Better practice is the provision of online databases that allow tracking of votes on the basis of date, country and company name.
As we enter the peak of the 2018 AGM season, the boxes that are being furiously ticked by institutional fund managers should be considered with care. Increasingly, fund managers will be held more accountable for their proxy voting decisions. This report highlights the key issues, some easy steps for the industry, and key questions to be asking your asset manager.