On Tuesday this week the industry saw ‘Ownership Day’, an initiative led by the UK Sustainable Investment and Finance Association (UKSIF) to raise awareness of the benefits of active ownership in investment management.
It has been well-documented that active ownership can benefit investors and there are numerous cases to illustrate this. Writing in the FT this week, for example, UKSIF chief executive Penny Shepherd cited the California Public Employees’ Retirement System (CalPERS) who at the 2011 Apple AGM won the support of 73% of shareholders after it proposed giving up the voting model that allows multiple candidates to be elected to the board with a single ‘for’ vote.
That, argued Shepherd, has since helped CalPERS protect future returns from its stake in the company. However, while this illustrates the merits of active ownership, the fact remains that investors are still not doing enough to embrace it.
But judging by an interesting panel debate at the National Association of Pension Funds (NAPF) Investment Conference in Edinburgh last week, it seems in some cases investors are not being given the chance.
One of the pertinent issues that cropped up during the lively discussion on the Shareholder Spring was the existence of a “gulf” between the party who actually invests the money and the party who controls votes. In other words: there is a gaping hole between the investor and the asset manager, which one trustee member of the audience was “appalled” to hear.
Some asset managers have specialist in-house governance teams, while others rely on the individual fund manager’s discretion – during the debate LGIM corporate governance director Sacha Sadan said: “Neil Woodford is perhaps the best at corporate governance I know.”
However, panel member Crawford Gillies, a non-executive director at Standard Life, said he was concerned there was not enough capability and capacity at asset management firms to undertake engagement because of cuts being made to corporate governance departments.
This is worrying because trustees have more than enough on their plate as it is and we don’t want to corporate governance to be neglected.
The likes of CalPERS have the clout to tackle these issues in-house, but smaller schemes need to know if they delegate stewardship to third party, be it their fund manager or a proxy voting agency, that it is being carried out in the best way.
There is no one-size-fits-all solution here, but whichever model institutional investors use to engage with companies they invest in, more needs to be done to facilitate joined-up thinking with those who actually vote at shareholder meetings. It’s time to mind the gap.
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