Proxy Voting- An overview
Investment Insights Team und ESG & Portfolio Analytics Team
In March 2017, State Street Global Advisors1 ("State Street"), one of the world's largest money managers, put up a statue of a fearless girl facing down the Wall Street bull in downtown Manhattan2. Upon unveiling the statue, State Street also made the announcement that it was changing its proxy voting policy: Going forward, if necessary, it would withhold its proxy votes from the chair of nominating or governance committees where no women serve on the board of directors.
What's in a vote?
- A proxy vote is a ballot cast by one person or firm on behalf of a shareholder of a corporation who may not be able to attend a shareholder meeting, or who otherwise desires not to vote on an issue.
- Prior to a company's annual meeting, eligible shareholders may receive voting and proxy information in advance of their shareholder vote.
- Investors may elect someone else–such as a bank–to vote in their place.
- Such shareholder voting is the primary means by which shareholders can influence a company's operations, its corporate governance as well as activities of social responsibility.
Even though State Street may have taken one of the most vocal steps to-date, a growing number of investors are concerned with the impact of their actions on environmental, social and governance (ESG) factors. This manifested itself in the 2021 proxy voting season which saw an unprecedented number of shareholder proposals on environmental and social issues that came to a vote. The level of support these votes received was captured by Deloitte in its report, Deeper Engagement: Investor Behavior in the 2021 Proxy Season.
Our takeaways from the 2021 proxy season
The takeaways of the 2021 proxy season of Rothschild & Co Bank AG ("R&CoBZ"/"bank") were summarized in our recent Proxy voting report 2021:
- R&CoBZ voted for all the stocks the bank owns in the Mosaique funds as well as for stocks within client mandates (as of September 2021 and after a contractual update, unless a client opted-out of voting).
- This meant that the bank voted at annual general or extraordinary meetings of 33 companies with a total of 628 proposals, out of which 580 came from management while 48 came from shareholders.
- Overall, the bank voted "for" in 92% of the proposals and "against" for the remaining 8%. The top three regions were the US (51% of proposals), followed by the UK (22%) and Switzerland (8%). Regarding sectors, top three among total votes cast were Financial Services (e.g., Bank of America and American Express), Consumer Defensive (e.g., Nestle and Unilever) and Technology (e.g., Apple, Adobe).
To support the voting decisions and dedicated research of the bank, it relies on proxy voting recommendations from ISS (Institutional Shareholder Services). The bank’s equity analysts assess and analyze ISS’s recommendations by also collaborating with the research teams of other asset and wealth management business lines across R&CoBZ as well as our equity research partners at Redburn. To comply with the guidelines of the ISS, companies must commit to the "triple bottom line": Focusing on profit, people and the planet. Besides board independence and its composition, another factor that is closely monitored is compensation and how it is aligned with ESG targets. ISS also supports shareholder proposals which aim to progress environmental and social issues, thus leading to a positive transformation of businesses.
The shift in voting practices is expected to continue in 2022 and should be examined in the context of the related underlying shifts that are currently happening in the corporate world. Changes are underway in both:
- “what” companies are supposed to address (including a growing number of environmental, social & governance (ESG) issues); and
- “who” companies are supposed to address (reflecting a shift toward multistakeholder capitalism in which companies are placing a higher priority on serving the long-term welfare of constituents, beyond shareholders).3
A highly visible example of a business which recently came under shareholder criticism is Apple (see Case Study).
Case study: Apple
Ongoing forced labor allegations in its supply chain and the large pay package of its Chief Executive Officer Tim Cook led some shareholders to come up with their own proposals or publicly positioning themselves to vote against certain management proposals. In the end, most of the shareholder proposals, except for a civil rights audit, were rejected. All directors were reelected, and the majority of shareholders approved the executive compensation plan. However, Apple claimed that it reached resolutions with shareholders on most of the rejected proposals, showing that an active investor engagement can contribute to lasting, positive and sustainable change.
R&CoBZ decided to vote against the management proposal on executive pay since concerns had arisen regarding the design of the equity award and its magnitude. On a board level, the bank voted against certain directors due to a lack of board diversity. Furthermore, the bank decided to support the shareholder proposal on forced labor in order to push for greater transparency on respective policies and increase reporting on the effectiveness of Apples' policies in this area. Other shareholder proposals, for example on reporting the gender/racial pay gap or conducting a civil rights audit, were supported by the bank as well.
With investors increasing calls for companies to back up long-term commitments with shorter-term goals, direct board oversight, clear reporting matrixes and the integration of ESG factors into their core strategies, the 2022 proxy-voting season is shaping up to be an especially active one. From climate change, diversity and inclusion to racial injustice - expectations that companies will take these matters seriously have never been higher and this proxy-voting season will show how important it really is for investors to make sure the companies they invest in are addressing these issues.
To conclude, as long-term stewards of our clients' wealth we will continue to exercise our proxy voting rights on behalf of our clients in the months and years ahead. This we will do in accordance with our stewardship guidlines, one which is built to last not just for the 2022 season but beyond.