By Ross Kerber and Jessica DiNapoli
(Reuters) – A new generation of executives at the world’s largest wealth managers are helping fuel an uprising against Corporate America that has long advocated environmental and social justice activists.
The big mutual fund firms, with stock holdings running into trillions of dollars, were once loyal members of the corporation. They cast their votes at shareholder meetings largely on the direction of management of the companies in their portfolios, on topics ranging from CEO salaries to carbon emissions reporting. They rarely discussed their decisions in public.
This year marks a fundamental change as top funds put more emphasis on investor’s environmental, social and governance (ESG) challenges and alert companies to them by frequently posting how and why they are Voting, a Reuters review of voting results and new disclosures by fund companies show.
According to corporate governance consultant ISS Corporate Solutions, as of June 1, more than 50% of investors in a record number of 14 companies had declined their executive salary packages. Investors turned down a total of 12 CEO salary plans throughout 2020. About 28% of the S&P 500 companies have not held annual meetings this year.
This trend culminated in the three largest index fund companies – BlackRock Inc (NYSE :), Federal road Corp (NYSE 🙂 and Vanguard Group – announced last week that they were facing a successful boardroom challenge. have supported Exxon Mobil Corp (NYSE :), one of its largest holdings, because of dissatisfaction with its efforts to diversify away from fossil fuels.
(Graphic: Shareholder proposals are gaining in importance – https://graphics.reuters.com/USA-FUNDS/COMPANIES-ESG/yzdvxmymrpx/chart.png)
Mutual fund firms are increasingly relying on ESG-focused funds to manage for some of their fee income. They are also being pushed to be more active by their own investors, including state pension funds. Some of them took up calls for social reform following the May 2020 assassination of George Floyd, a black man whose death in police custody in Minneapolis sparked a national reckoning of racial injustice.
Big fund managers “got the message that this is important to investors,” said Andrew Collins, who oversees investments responsible for the $ 31 billion San Francisco employee pension scheme, of which BlackRock is a fund manager.
Naming and shaming
Many of the leaders who are driving the change are newcomers to the big funds. Sandy Boss, who BlackRock recruited from the Bank of England last year as the new global head of investment stewardship, is urging companies to do more on issues such as climate change and diversity in the boardroom. BlackRock has made its voting decisions on more than 80 companies public since 2020 and is often critical of corporate governance failures under Boss.
BlackRock declined to provide Boss for an interview, but in a statement sent by a company representative, Boss said the new disclosures – some of which were made prior to their arrival – are intended to help educate our clients about the work that is being done we, on their behalf, act to promote governance and sustainable business practices that support long-term financial performance. ”
John Galloway, a former White House official who became Boss’ counterpart at Vanguard last year, has berated and abused companies he considers ESG laggards. Vanguard declined to make him available for an interview, but Galloway previously said he wanted to make Vanguard’s views transparent.
Another new ESG chief, Jessica Ground, joined the parent company of American Funds Capital Group last year after 23 years as an investment manager Schröder (LON 🙂 Plc. Capital wrote to around 1,600 portfolio companies in February to urge diversity in boardrooms and to request demographic data on the workforce. ESG issues are “fundamental to the long-term success of companies we invest in,” Ground said in a statement emailed by a Capital representative.
Caitlin McSherry, who joined Neuberger Berman last year after four years at State Street as director of investment stewardship, said she plans to double the memos her company will post to 60 in 2021 to help board members understand what investors expect from them. She added that 2020 had brought a lot of ESG issues such as occupational safety, diversity and supply chain management to the fore.
James McRitchie, a private investor and prolific proposer of shareholders ‘resolutions challenging companies, said the large funds’ recent attempt to publicize their displeasure with corporate ESG failures has encouraged investment firms large and small to vote with them.
(Graphic: Say-on-Pay rejection rate rises at S&P 500 – https://graphics.reuters.com/USA-FUNDS/COMPANIES-ESG/xegpbrnrgpq/chart_eikon.jpg)
One of the big companies that lost votes this year is the railway company Union Pacific Corp (NYSE :), whose board of directors was reprimanded by 86% of the votes cast in support of a call for diversity information disclosure about its workforce. A Union Pacific spokeswoman said she would soon release the personal information sought by investors.
In another pushback case on May 4th, a majority of the industrial conglomerate’s shareholders General electrics (NYSE 🙂 Co declined to pay CEO Larry Culp up to $ 230 million in compensation. Critics included BlackRock and Neuberger Berman, as their new revelations showed. A representative from GE said the company will seek additional feedback from investors as it evaluates its executive compensation program.
Detailed documentation showing how certain fund companies voted at annual corporate shareholder meetings will not be available until August.
VOTES LEAD TO CHANGE Of course, the big funds remain selective in their struggles, and most companies have not yet been under such pressure.
However, some investment managers see this as just the beginning of a scramble on Wall Street to get companies to buff their ESG credentials. “When you see BlackRock’s bottom line improving and you’re Vanguard, you can’t lag too far behind,” said Tim Smith, a director at Boston Trust Walden, which often puts forward shareholder resolutions that management rejects.
Many of the large fund-backed resolutions challenging companies are non-binding. Still, they often lead companies to heed investor concerns.
Around half of the companies that received at least 30% of the votes in support of environmental and social decisions responded with the proposed changes, according to an analysis by BlackRock of 74 investor decisions from 2017 to 2019. Another quarter of the companies had partially complied with the wishes associated with the shareholder proposals, according to the asset manager.
Paul Moroz, chief investment officer of Mawer Investment Management, which manages $ 69 billion in assets, said growing interest among younger investors in corporate climate change records or workforce diversity will put pressure on fund companies, corporations more challenging on ESG matters.
“Younger investors want ESG factors to be built into their portfolios,” said Moroz. Top fund firms, he said, “need to evolve with their client base.”