Dimon-led governance project a tough
Asset managers backing project
are among least likely to vote against management, analysis shows
Stephen Foley in New York
US campaigners for
improved shareholder rights may well be sceptical of a new set of
corporate governance principles for public companies being hammered
out by the country’s largest asset managers.
The group convened
by JPMorgan Chase chief executive Jamie Dimon and investment guru
Warren Buffett to work on the project are among the least likely to
vote against management in contentious shareholder votes, according to
analyses by the AFL-CIO, a federation of unions.
revealed on Monday that the heads of BlackRock, Fidelity, Capital
Group, T Rowe Price, Vanguard and other asset managers had met to
discuss ways to encourage longer-term investment and reduce friction
between companies and shareholders.
Discussions at the
secret summits have centred on the role of board directors, executive
pay, board tenure and shareholder rights, all of which have been
flashpoints at US annual meetings. The aim is to produce a list of
best practices that the firms will support at the companies in which
they invest, although is unclear how detailed the proposals will be
significant policy differences between the participants.
Because of their
size, the asset management firms involved are typically among the
largest shareholders at US public companies, but the AFL-CIO rated
them all in the “bottom tier” of institutional investors when it came
to supporting shareholder proposals at annual meetings.
vote survey” of 29 large company meetings in 2015 examined
proposals to split the roles of chairman and chief executive, curb
executive compensation, give shareholders greater say in board
appointments and improve disclosures around lobbying and human rights.
T Rowe Price
supported the selected proposals 41 per cent of the time, but Vanguard
and Capital Group’s American Funds voted in favour less than 20 per
cent of the time. Fidelity lent its support to just 10 per cent of the
one of the
most prolific sponsors of proposals at US corporate meetings, says
the large mutual fund complexes have never been in the forefront of
improvements to shareholder rights.
“They do not seem
to be activist at all,” he says. “None of them have a reputation for
rocking the boat, or for forging something new in corporate
principles that emerge from a consensus of the large managers are
likely to fall short of those typically supported by the powerful
proxy advisory services ISS and Glass Lewis, which offer voting
recommendations to pension funds and other investors lacking resources
to make assessments of their own.
In recent years,
the two services have become more aggressive at pushing for greater
shareholder rights and then opposing the re-election of boards of
directors that ignore shareholder votes. Attorneys defending companies
against attacks from activist hedge funds often complain that they
side with the hedge funds, with the result that companies are pushed
into moves, such as disposals or share buybacks, that come at the
expense of long-term investors.
abound, however, about whether improving shareholder rights is
associated with promoting short-termism or actually encourages firms
to think about the long term, particularly if it means focusing on
long-term environmental and reputational risks that are often on the
agenda of governance campaigners.
head of global research at ISS, says the service’s recommendations are
based on polling of a wide range of investors, including large asset
managers and hedge funds and public pension funds, as well as
“We do not view
ourselves as standard setters,” she says, “but as a reflection of good
governance principles as seen through investors’ lens.”
Mr Dimon, who has
criticised “lazy” shareholders who follow ISS and Glass Lewis
recommendations, has had his own run-ins with the proxy advisory
services, which opposed his holding both the chairman and chief
executive roles at JPMorgan Chase.
chief executive of the financial reform advocacy group Better Markets,
says a JPMorgan-led governance effort “is built on exploiting short-termism,”
referring to the bank’s trading arm. “Why the lambs would be convened
by the wolf, I do not understand.”
business includes an asset management arm with $1.7tn in assets, has
declined to comment on the governance initiative, as have the
effort has been welcomed by others in the governance world. Howard
Sherman, executive director of environmental, social and governance
research at MSCI, says it reflected asset managers’ awareness of the
impact these factors can have on “the risk-return profile” of their
And Gary Hewitt,
director of governance research at Sustainalytics, says: “Limiting
shareholder rights has been tempting, but really isn’t the route to
long-termism; rather, long-termism comes when investors with longer
time horizons take a more explicit and active stand on long-term value
creation at their companies”.
Copyright The Financial Times Limited 2016.