Investors who manage money for pension funds and other institutions are growing more combative, increasing the number of times they vote against companies on issues such as electing directors or approving executive pay.
An annual survey of the proxy voting track records of institutional firms that manage money for pension plans shows firms are voting more often against a company's voting recommendations and more willing to support proxy resolutions submitted by shareholders.
"More and more shareholders are voting against executive compensation packages," said Catherine Smith, who vote the report on behalf of the Shareholder Association for Research and Education (SHARE), a Vancouver-based investor advocacy group. "Although the majority of shareholders continue to vote with management, votes against executive compensation packages are on the rise."
In votes on executive compensation plans, known as say-on-pay voting, support for management's plans fell to 90 per cent in 2013 compared to 92 per cent in 2012 and 94 per cent in 2011, SHARE said.
The study examined the voting record of 40 money management firms that agreed to provide information on how they voted their proxies between July, 2012, and July, 2013. The firms often have a low public profile because they work behind the scenes as investment managers for corporate or public pension plans, but they have significant clout with over $70-billion of combined Canadian equity holdings under management.
The survey found 88 per cent of the firms said they exercise discretion to make proxy voting decisions for more than 80 per cent of pension plan clients' Canadian equity holdings.
SHARE selected proxy voting issues at 21 different companies where there was some degree of controversy or shareholder opposition, including votes on re-electing directors, say-on-pay votes on compensation and votes related to reappoint auditors. All were issues where SHARE had issued voting guidance for shareholders in advance of the vote, typically recommending opposing various elections or pay plans because of concerns about governance or compensation practices.
SHARE said the firms surveyed voted in line with SHARE's recommendations 57 per cent of the time, which is an increase from 40 per cent in 2012 and 44 per cent in 2011. It suggests the money managers are more willing to take an activist stance in opposition to management, SHARE said.
The study relies on voluntary disclosures from fund managers, and 26 other institutional money managers declined to participate or did not respond to requests for information, SHARE said. The funds that replied were more activist and more opposed to management than the general shareholder votes on almost all the issues studied, which could indicate that more activist firms are more willing to disclose their voting records.
For example, 67 per cent of the funds surveyed voted against Canadian Pacific Railway Ltd.'s approach to executive compensation last year, which was higher than the 28.5 per cent overall vote by all shareholders.
Similarly, the institutional investors surveyed were more likely than shareholders overall to vote against the election of a director in eight out of nine controversial votes examined by SHARE. At Cott Corp., for example, 80 per cent of the institutions surveyed said they voted against reappointing director Stephen Halperin – who was being opposed by SHARE as a non-independent director because his law firm provided services to Cott – while shareholders overall voted just 45 per cent against Mr. Halperin's reappointment.
SHARE said 51 per cent of the firms surveyed now disclose their proxy voting records publicly, up from 41 per cent last year, which is part of a broader trend of greater transparency. Additionally, 59 per cent of the firms now publicly disclose the proxy voting guidelines they use to decide on how to vote on issues, up from 42 per cent two years ago.
Only 10 per cent of the firms said they leave proxy voting decisions to individual portfolio managers, down from 31 per cent two years ago. Seventy-one per cent say they have in-house proxy voting staff or rely on an in-house proxy voting committee, compared to 62 per cent two years ago, which suggests the firms are developing more rigorous systems to make voting decisions.