Asset managers that invest trillions of savers’ money too often fail to challenge companies on excessive pay and bonuses, shareholder activist group ShareAction has said.
Blue-chip City firms, including BlackRock, HSBC’s global asset management division and Schroders, were found to have mostly sided with company management on controversial decisions over pay, which showed they were “not exercising their stewardship responsibilities” the NGO said.
The survey of the UK’s 33 largest asset management firms, which look after £13.8tn for pension savers, charities, universities, also singled out six investment managers for failing to be transparent.
ShareAction studied some of the biggest shareholder rebellions of the 2014 annual general meeting season, a total of eight occasions when companies faced dissent from more than 30% of investors.
The biggest corporate revolt was at trenchcoat maker Burberry, when just over half of investors voted against the decision to award the incoming chief executive, Christopher Bailey, a golden hello of £15m in shares. Standard Chartered bank, the consumer goods conglomerate Reckitt Benckiser and drug company AstraZeneca, also faced rebellions, when a large minority of shareholders voted against executive pay deals.
The AGM is one of the main ways investors can hold to account the chief executive and board of listed companies, although until the “shareholder spring” of 2012, most meetings were sleepy affairs with little dissent.
Some asset managers, including Aberdeen Asset Management, Hermes and M&G, continued this non-dissenting tradition at AGMs; the ShareAction report showed they sided with company boards on most controversial votes.
In contrast, Threadneedle Asset Management, Aviva and Goldman Sachs were among the firms that more often voted against contentious pay awards.
The same group of activist investors also tended to support resolutions on environmental and social issues, such as a target for ExxonMobil to reduce greenhouse gas emissions or an obligation on National Express to improve oversight of bus drivers’ conditions.
Other asset managers consistently voted against environmental and social resolutions, including Aberdeen Asset Management and the fund management arms of JP Morgan and UBS.
Catherine Howarth, the chief executive of ShareAction, said: “Our survey suggests a wide range of big names in asset management aren’t exercising their stewardship responsibilities at some of the world’s biggest companies.”
“While the detail of any one vote may not be indicative of an approach, there does seem to be a pattern for some managers across the votes we looked at with significant shareholder dissent. We expect investors will be asking tough questions of their asset managers, particularly those who appear to be simply backing management most of the time.”
“Investors should on the whole support company management. However, they should be willing to vote against management’s voting recommendations to protect the long-term interests of their clients and their beneficiaries.”
But the asset management industry body said it was undertaking stewardship and engaging with companies in ways beyond the AGM.
“Voting happens at the end of the process and, as the report highlights, investors express their views. This sometimes leads to reassurance through dialogue and engagement, which can result in votes in favour of board recommendations,” said Daniel Godfrey, chief executive of The Investment Association.
ShareAction also criticised six asset managers for failing to disclose their AGM voting record, in contravention of the industry best practice code they have signed. Artemis, Capital International, Invesco Perpetual, J O Hambro Capital Management, Santander, and Wellington, do not disclose their AGM voting record, although all have signed the Stewardship Code, which includes a requirement to provide periodic reports on voting.
The most transparent asset managers were Aviva Investors, F&C Investments, Newton Investment Management, Royal London Asset Management and Standard Life.
Ashley Hamilton Claxton, corporate governance manager at Royal London – an asset manager with a track record of opposing controversial pay deals – said it welcomed the report. “We think stewardship is very important and we try to encourage good governance through our proxy votes and through conversations with company directors. We support the report’s call for greater transparency, and hope that more fund managers will disclose their voting intentions in the future.”
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