Wall Street’s old guard shakes new blood Corporate America
A new generation of leaders from the world’s largest asset managers are helping spark an uprising against U.S. companies for which environmental and social justice activists have long campaigned.
The large mutual fund companies, with stocks worth trillions of dollars, were once staunch members of the corporate establishment. They voted at shareholder meetings largely on direction from the management of their portfolio companies, on issues ranging from CEO compensation to reporting on carbon emissions. They rarely discussed their decisions publicly.
This year marks a sea change as major funds place greater emphasis on the challenges investors face to companies on environmental, social and governance (ESG) issues and warn companies by often choosing to publicize how and why they voted, a Reuters study on voting results and new information from fund companies.
According to corporate governance consultant ISS Corporate Solutions, a record 14 S&P 500 companies had more than 50% of investors rejecting their executive compensation packages as of June 1. Investors have rejected a total of 12 CEO compensation plans in all of 2020. About 28% of S&P 500 companies have yet to hold their annual meetings this year.
This trend culminated when the three largest index fund companies – BlackRock Inc (BLK.N), State Street Corp (STT.N) and Vanguard Group – revealed last week that they had successfully backed a board challenge. directors against Exxon Mobil Corp (XOM.N), one of their largest holdings, over dissatisfaction with its efforts to diversify away from fossil fuels.
Mutual fund companies increasingly rely on the ESG-focused funds they manage for a portion of their commission income. They are also being pushed by their own investors, including public pension funds, to take a more active stance. Some of them have seized on calls for social reform in the wake of the May 2020 murder of George Floyd, a black man whose death while in custody in Minneapolis has sparked national awareness about racial injustice.
Big fund managers “understand this is important to investors,” said Andrew Collins, who oversees responsible investing for San Francisco’s $ 31 billion employee retirement system, which fund managers include. BlackRock.
NAME AND TRIBUTE
Many of the leaders behind the changes are newcomers to the deep sea. Sandy Boss, who BlackRock recruited from the Bank of England last year as the new global head of investment management, is urging companies to do more on issues such as climate change and diversity of corporate advice. administration. BlackRock has made public its voting decisions on more than 80 companies since 2020 and frequently criticizes corporate governance breaches under Boss.
BlackRock declined to make Boss available for an interview, but in a statement sent by a company representative, Boss said the new disclosures – some of which predate his arrival – are intended “to help keep our customers informed. for the work we do on their behalf to encourage governance and sustainable business practices that support long-term financial performance. ”
John Galloway, a former White House official who became Boss’s counterpart at Vanguard last year, has named and shamed companies he sees as ESG laggards. Vanguard declined to make him available for an interview, but Galloway has previously said he wants to make Vanguard’s views transparent.
Another new ESG manager, Jessica Ground, joined parent company American Funds Capital Group last year after spending 23 years with investment manager Schroders Plc (SDR.L). Capital wrote to about 1,600 portfolio companies in February to lobby for board diversity and request workforce demographics. ESG issues are “fundamental to the long-term success of the companies in which we invest,” Ground said in an emailed statement from a representative of Capital.
Caitlin McSherry, who joined Neuberger Berman last year as director of investment management after four years at State Street, said she plans to double to 60 the ratings her company will release in 2021 on how she voted on corporate ballots, to help boards of directors understand what investors expect of them. She added that 2020 brought to the fore many ESG topics such as workplace safety, diversity and supply chain management.
James McRitchie, private investor and prolific depositor of shareholder resolutions challenging corporations, said the recent push by deep funds to publicize their dissatisfaction with corporate ESG failures has encouraged investment firms large and small to vote in their sides.
Among the big companies that have lost votes this year is the rail operator Union Pacific Corp (UNP.N), whose board of directors was berated by 86% of the votes of shareholders who backed a call to disclose information on the diversity of its workforce. A Union Pacific spokeswoman said she would soon release details of the workforce investors are looking for.
In another pushback case, on May 4, a majority of shareholders in industrial conglomerate General Electric Co (GE.N) rejected CEO Larry Culp’s compensation, worth up to $ 230 million. Critics included BlackRock and Neuberger Berman, as their new revelations showed. A representative for GE said the company will seek additional feedback from investors when evaluating its executive compensation program.
Detailed records showing how specific fund companies voted at annual meetings of company shareholders will not be available until August.
VOTES LEAD TO CHANGE
Granted, the deep sea remains selective in the battles they choose, and most companies have yet to come under such pressure.
Still, some investment managers see this as the start of a rush on Wall Street for companies to step up their ESG credentials.
“If you see BlackRock dramatically improving its balance sheet, and you’re Vanguard, you can’t be too lagging behind,” said Tim Smith, director of investment management firm Boston Trust Walden, which often submits resolutions. shareholders against whom management opposes.
Many of the resolutions backed by big funds that challenge business are not binding. Yet they often lead companies to heed investor concerns.
About half of the companies that received at least 30% of the votes in favor of environmental and social resolutions responded with the changes that had been desired, according to an analysis of 74 investor resolutions from 2017 to 2019 by BlackRock. Another quarter of companies partially responded to requests associated with shareholder proposals, according to the asset manager.
Paul Moroz, chief investment officer of Mawer Investment Management, which manages $ 69 billion in assets under management, said that the growing interest of young investors in business files on climate change or the diversity of the workforce This work would only increase the pressure on fund companies to challenge companies more on ESG matters. Questions.
“Young investors want to see ESG factors built into their portfolios,” said Moroz. The best fund companies, he said, “have to grow with their customers.”
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