Canadian Pensions Fail to Provide Proxy Voting Direction

The Shareholder Association for Research and Education’s (SHARE) ninth annual Key Proxy Vote Survey found that a substantial proportion of investment managers (71%) say they vote most of their pension fund clients’ proxies at their own discretion, without instructions or guidance from their clients.

“We saw a 10% decrease this year in the number of firms that said they receive guidance or direction from their pension plan clients on how those clients’ proxies should be voted,” says SHARE’s Director of Law and Policy, Laura O’Neill,    “This suggests that more institutional investors, including pension funds, let their money manager decide how their proxies should be voted. The lack of direction is cause for concern.”

In 2009, 35 firms responded to SHARE’s voluntary survey, which asked the firms how they voted on a selection of 34 issues that appeared on the ballots of Canadian companies. These issues include board and committee independence, executive stock option plans, and corporate reporting on environmental and social risks, as well as others.

“Pension funds, and other institutional investors, should give their proxy voting agents guidance on how their proxies should be voted, ideally by adopting a set of proxy- voting guidelines,” said O’Neill, “This is important because pension fund trustees have a fiduciary duty to oversee how the proxies attached to their funds’ stocks are voted.”

The survey also found of the firms that responded, 40% (an increase of 11% over 2008) of firms disclose their proxy voting guidelines to the public and 49% (up from 39% in 2008) consult with their clients about the proxy voting guidelines.

An encouraging trend in this year’s survey is that all but one of the firms handling securities lending for their clients have procedures in place to recall lent shares in time to vote them. Also, the survey response rate of 56% marks an increase from previous years, indicating greater fund manager willingness to be transparent and accountable about the exercise of proxy voting rights on behalf of clients.

The annual Key Proxy Vote Survey is undertaken by the Columbia Institute’s Responsible Investment Program with the assistance of the Shareholder Association for Research and Education.

SHARE recommends that all pension fund trustees take the following steps to oversee how the proxies of their funds’ equity investments are voted:

1. Review the proxy voting record of your plan’s investment manager or proxy voting service and discuss it with them. Discuss with them how they voted on the issues in the Key Proxy Vote Survey. Ask for an explanation of their votes on issues in the survey and on any other issues of interest to you.
2. Establish proxy voting guidelines that match the geographical scope of your plan’s investments; if the plan has global investments, establish proxy voting guidelines with a global scope.
3. In the plan’s Statement of Investment Policies and Procedures (SIPP), set out the roles and responsibilities for voting the plan’s proxies. Trustees should retain the discretion to direct proxy voting if they choose to do so. The SIPP should make reference to the plan’s proxy voting guidelines.
4. Give investment managers, proxy voting services, or other voting agents a copy of the plan’s proxy voting guidelines.
5. Monitor how the plan’s proxies are being voted to ensure that they are being voted according to the guidelines.