Asset Management

Asset Managers Flex Muscles In Share Voting Season

Jackie Bennion Deputy Editor April 20, 2020

Asset Managers Flex Muscles In Share Voting Season

There have been calls to improve transparency and the way shareholders participate in the proxy voting season as social and governance issues take on new urgency.

As the dial moves up on how companies are conducting themselves and communicating with clients in these difficult times, US investment manager Neuberger Bermant has used the moment to launch a new proxy voting disclosure system just as the AGM season gets underway and reputations swing into view. The new measure, dubbed NB25+, will allow the firm to publicly disclose and explain its voting intentions at 25 or so key annual shareholder meetings with plenty of forward notice for stakeholders to get engaged.

It claims to be the first sizable asset manager to tread a more transparent path, suggesting none of its peers managing upwards of $100 billion in AuM discloses a "meaningful number of key votes well in advance of the meeting" and that most outcomes are only disclosed long after elections, "if at all.”

The New York-based fund manager began posting advance-disclosure information on April 3, listing a raft of voting intentions, including what board committees are doing to square executive pay with performance – an issue likely to take on a vastly different hue as profits crater in the pandemic.

Activist shareholders have long used proxy voting in the US to influence board behavior. It is seen as one of the main levers for holding corporations to account and exposing where they are obfuscating or worse. The opioid scandal is one recent example. Shareholders of all stripes get to wade in on what governance stands for and how companies are mirroring society. Issues being hard-pressed are divesting from fossil fuels, closing gender and diversity holes, and qualifying often-exorbitant executive pay.

These have become the bread and butter principles of ESG meant to build investment resilience, and the appetite to integrate them has been unrestrained over the last few years. The question now, as a global crisis unfolds, is whether the industry sticks by them and they continue to flourish or they burn out. Asset managers have been quick to highlight data suggesting that ESG funds are more than weathering recent market falls, including fund house Fidelity International this week. But as ESG funds tend to favor high-quality companies with a strong balance sheet, including many tech companies, it is little surprise that they will hold up well.


Neuberger Berman said that opening up its proxy voting system to strengthen governance will be led by the 600 or so investment professionals that work directly with the portfolio companies the firm invests in and not by small stewardship groups or independent proxy advisors.

“It can be tough to publicly challenge management or speak up for or against activists, but we think it’s more important now to make our voice heard as we seek to improve the firms in which we invest,” said the group’s CEO George Walker. For capitalism to work, “shareholders need to engage as owners,” he added.

Jonathan Bailey, who runs Neuberger's ESG program, framed it this way: “Some of the world’s most sophisticated asset owners disclose their votes in advance because they understand that it can help elevate the quality of corporate governance at companies. We think it is time for large asset managers to do the same. Our analysts and portfolio managers conduct thousands of engagements with companies each year, and we cast proxy votes based on our own guidelines and analysis. By disclosing key votes in advance, we hope that more companies will be clear about our expectations.”

COVID-19 has thrown the "social" component of ESG into the spotlight as never before, measured in how businesses are treating their workers, preserving jobs or letting people go, while equally being scrutinized for how they handle dividends and executive bonuses.

Nuveen is another pointing to how the current crisis is sharpening attitudes. In a report this week, the investment firm warned that companies are going to be “far more challenged” this voting season on their human capital management and how they handle a significant crisis in preserving long-term value.

“We believe 2020 will see the awakening of a broad swathe of investors highly attuned to the relationship between a company’s financial performance and how effectively it manages these issues,” said Amy O’Brien, global head of responsible investing at Nuveen, which manages around $900 billion for clients.

Environmental and social proposals already account for 66 per cent of proposals submitted to the group in 2020, as investors move beyond disclosures and demand tangible action on climate change and getting minority groups, besides women, represented on boards.

The US investor outlined a number of themes to watch for in the 2020 voting season:

Recent SEC changes could hamper future environmental and social proposals
This relates to a couple of changes to proxy voting rules by the Securities and Exchange Commission aimed at tightening oversight of proxy advisory firms to reduce reporting errors. Critics argue that more compliance will only raise costs for intermediaries, especially hurting smaller firms, delay company disclosures reaching the public, and for the small number of errors submitted not worth the extra burden put on providers.

The SEC has also proposed changes to shareholder submissions based on shares ownership, raising the stakes from $2,000 of stock held for a year up to $25,000. Again there is pushback that this will deny non-wealthy investors from having their say -- precisely the group the SEC says it wants to protect. The $2,000 figure has stood since 1998, but opponents say adjusted for inflation, the new base should be somewhere closer to $3,500 not $25,000. A proxy roundtable committee debating the changes suggested that “the beauty of shareholder democracy is that the quality of one's idea doesn't depend on the size of one’s ownership" and the marketplace for good ideas is not limited to "large institutional investors”  - much like how the COVID-19 outbreak is highlighting that contributions to fighting the crisis are coming from all corners of society.

Environmental and social topics figure top for investors
Environmental and social issues are likely to hit an all-time high for the fourth consecutive year, Nuveen said. It expects political contributions and lobbying proposals, along with climate change, to dominate in light of a US election year, and growing environmental concerns worldwide. Shareholder proposals now want action not just risk disclosure on climate change, including measurable carbon reduction goals aligned to the Paris agreement. To date for 2020, three-quarters of environmental proposals are climate related and two-thirds of shareholders want action rather than just disclosure, the firm said.

Stakeholders want transparency on gender parity and workplace diversity
Now that every company in the S&P 500 can count at least one female board member, Nuveen said focus will shift to under-represented groups at board level, especially in board leadership positions. Also, now that workforce diversity, inclusion and equal pay are widely accepted as competitive strengths, more proposals will focus on pay transparency and metrics on how companies are promoting, recruiting and retaining minority employees.

Executives should expect environmental and social metrics making their way into compensation
Shareholders are increasingly seeing that they can link environmental and social objectives to executive pay and tie bonuses directly to ESG strategies. Nuveen said the approach won’t dominate the 2020 proxy season, but it is gaining steam, with a few notable companies already receiving proposals targeting the objective in 2020.

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