A ‘joke’ and a ‘complete waste of time’ was how JP Morgan chair and chief executive Jamie Dimon branded annual shareholder meetings last week – but these assemblies are just one way that investors are pushing for corporate change.
Now, as they become more administrative and with executive pay packages nearly always approved regardless of the vote, it is all about grouping up with other investors, lobbying a company’s customers and chatting to their whole supply chain.
As active asset managers continually try to find new ways to differentiate themselves from passive funds, some are placing an increasing focus on shareholder engagement and ‘activist investing’.
Certainly investors are getting louder, even the more traditional ones. In his submission to the Financial Reporting Council (FRC), Old Mutual Global Investors chief executive Richard Buxton called for a major overhaul of corporate governance and reform on executive pay and company culture, as well as greater disclosure on ethnic diversity.
Bypassing the board
However, others have gone beyond that and are taking more unconventional approaches. Hermes, for example, has an innovative method for engaging with companies, especially when they are not keen on their views the first time round.
With the introduction of dual-class shares in some markets making it harder for shareholders to influence the boards of various companies, in some cases Hermes has decided to bypass the company’s management and air their grievances with the company’s customers, supply chain and other investors.
Christine Chow, a director in Hermes’ Equity Ownership Services (EOS) team, used the example of Foxconn – a Chinese electronics supplier which counts Apple, Google and Microsoft as major customers – in which dual-class shares have meant it is a lot more difficult for shareholders to challenge the firm on its labour practices, governance and environmental performance.
The firm has been heavily criticised in the past for the ‘Foxconn suicides’, where 22 Foxconn workers at its factory in Shenzhen, China, committed suicide in an apparent connection with working conditions.
The world’s largest contract electronics manufacturer has also been criticised for a lack of disclosure on its environmental performance.
Chow said: ‘We need to take an innovative way to get them to listen. By engaging with their supply chain, customers like Apple for example, and other investors, we can push them to change their labour practices oversight and their views on climate change.’
While Hermes seems to be unusual in going to a company’s customers in a bid for change, grouping with other investors, called collective engagement, is an increasingly popular way for investors to make their voices heard.
Ashley Hamilton Claxton, head of responsible investment at Royal London Asset Management, said collective engagement can be one of the ‘most powerful’ ways of making their voices heard by companies.
She gives the example of a meeting between one company and the 30% Club about female representation on their board.
‘There were 12 investors in one room with this company, which sent a powerful signal to the company that we’re not paying lip service, we really do care about it,’ she said.
Talk is cheap
Though investors often talk a good game, voting records have often showed a palpable discord between what investors say and how they vote on issues.
One high profile example is Sports Direct, where virtually every investor seemed to share concerns about its chair Keith Hellawell and how the business is run.
But at the firm’s annual general meeting, he was re-elected to the post after he received the backing of 53% of shareholders.
George Latham, managing partner at Wheb Asset Management, said that disconnect is starting to close as fund managers realise they will be found out if they do not follow up words with actions.
He said: ‘There have been some fairly high-profile examples of a disconnect between what investors say and how they vote – with Exxon, Chevron and the like in the US, and Sports Direct in the UK – and that has resulted in some pretty embarrassing disclosures for fund managers.’
So as asset managers get more active with companies, are those on the boards listening?
Claxton said: ‘There is a recognition boards need to be more engaged with investors. They are coming to us and having conversations on strategy, ESG, etc.
‘There are some companies who just do it as a box-ticking exercise, and a lot of it is about PR and managing reputational risk, but there is an increasing amount of firms who do genuinely want that feedback.’
She added that in turn, the rise of activist investing in part comes down to demand from clients for their money to be invested wisely: ‘We’re getting a lot more sophisticated questions from clients about responsible investment, and that puts pressure on us to be continually active and good stewards of their money.’