Stewardship Should Reflect Views of Beneficial Owners

This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

We, ShareSoc, think that individual investors have been disenfranchised by the nominee system and by the difficulties in getting timely copies of Annual Reports, AGM notices and voting forms. It is estimated only 6% of individual investors shares get voted, which is a disgrace. What is needed is a neat, easy to use system that makes it ultra quick and easy to vote your shares.

Individuals who invest in funds have little or no control over how the shares in their funds are voted. Yet with modern technology, it could be quite easy to survey how these investors wanted their shares to be voted, to develop a template reflecting their views and to outsource the delivery of the votes to someone like Minerva Analytics (which is owned and run by my  friend Sarah Wilson). However fund managers appropriate the votes of the shares in the funds and vote them in line with their own corporate governance principles. The problem is the investors have an investment horizon of 3o to 40 years, but fund managers think long term is 2 to 3 years. Fund managers’ remuneration is driven by fund performance measured over 1 and 3 years, and growth  in assets under management. This produces a tremendous pressure on fund managers for short term performance and creates a culture where they encourage companies in which they invest to have incentive plans which over focus on the short term. Worst still it creates a bias for action (see the Kay Review for the evidence), which is reflected in acquisitions, divestments, overly rapid growth strategies, pie in the sky investment plans, excessive leverage and unnecessary risk, especially tail risk.

Similar issues about voting apply to pension funds, where individual pension fund members and trustees currently have little influence over their fund managers

The good news is that there is evidence that the world is waking up and things are beginning to change.

The UK’s pensions minister, Guy Opperman said at the TUC investment conference on 5th February 2019,

As I previously mentioned – I kept a commitment to give pension scheme trustees clarity about their duties. But I am also interested in pension schemes being given a voice. 

When many schemes – especially defined contribution schemes – invest in equities, they invest alongside others in pooled funds. They get to choose the fund and with it the investment manager, but they don’t get to choose how to vote at AGMs for the companies’ shares they hold. Those votes are about precisely the things I mentioned earlier – how the firms are preparing for climate change, how they treat employees, how executives are paid. Why can’t the end investors – the trustees, which might include trade union members – cast those votes?

I find this puzzling. I hear that technology is a problem, but if that’s the case we should fix the technology. I hear that asset managers think it’s better to speak with one voice. But I don’t think it’s impossible to communicate that your investors have a diversity of views. I hear that it might even be illegal, but if that’s the case why are some investment managers letting some clients vote? Should those managers be in prison for letting investors vote on their own assets? 

I put those thoughts out there. I would like to hear what pension schemes think. 

Responding to Pensions Minister Guy Opperman’s speech at the TUC Pensions Conference today, the Association of Member Nominated Trustees (AMNT) congratulated the Minister for raising the issue of why asset owners do not have control over their shareholder votes when they invest in pooled funds.

Janice Turner, founding co-chair of Association of Member Nominated Trustees (AMNT), said:

“We strongly welcome this statement from the Minister on the stewardship of asset owners and their ability to execute their responsible investment policies, especially with regard to pooled fund arrangements.  We particularly appreciate his challenge to the reluctance among the fund manager community to accept trustee voting policies, identifying similar barriers that we have encountered during our research on this issue.  

“With the support of the UK Government, we hope that the new regulations make it even more clear that this issue has to be addressed, and we at the AMNT will continue our campaign to empower trustees to adopt and implement their own stewardship policies.”

Leanne Clements, campaign manager for Red Line Voting, added:

“We cannot continue with status quo arrangements – greater regulatory pressure on trustees, but continued reluctance from the fund management community to adopt client policies in pooled fund arrangements – as this will result in an impasse with no positive momentum.  The industry needs to work together – including asset owners, fund managers, and UK regulators – to develop solutions to this issue. 

“We are certain that  continuing support from the Department for Work and Pensions on these important issues will enrich our campaign efforts to empower asset owners to adopt – and most importantly to execute – their stewardship policies.”

During his speech, Guy Opperman stated his commitment to give pension scheme trustees clarity about their duties regarding environmental, social and governance (ESG) and stewardship considerations, and also indicated his interest in schemes “being given a voice”.

Going further, he questioned why the “end investors” – the trustees – cannot cast their votes in pooled fund arrangements.  He highlighted the barriers noted by the industry as reasons why this cannot be done.  To the issue of  technology being a barrier, the Minister stated that “we should fix the technology”.  To the feedback that fund managers believe it is better to “speak with one voice”, he stated his view that it is not “impossible to communicate that your investors have a diversity of views”.  Saying that he had heard suggestions that it might even be legally questionable, he said: “But if that’s the case why are some investment managers letting some clients vote?”

Cliff Weight, Director, ShareSoc

One comment
  1. Keith says:

    Great post Cliff. Made up barriers to protect the status quo and what a great status quo that is! (NOT)

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