Leading by Example

Leading by Example: Proxy Pre-Disclosures Influence Outcomes

Leading by Example. Norges Bank Investment Management (NBIM) has already gained influence after deciding to pre-disclose its proxy votes its proxy votes (typically 5 days before AGM) beginning in 2021. Following NBIM’s pre-disclosure to vote against a proposal, opposition by other shareholders increases by approximately 2.7%. Compare that to ISS (12%) and Glass Lewis (6.5%). See Leading by Example: Can One Universal Shareholder’s Voting Pre-Disclosure Influence Voting Outcomes? Unlike many other pre-disclosing funds, NBIM votes at a huge number of companies and includes the reasons for its votes in its disclosures.

See my Shareholder Action Handbook for a list of other funds that have a history of pre-disclosing, although many have discontinued doing so. This paper and others like it may lead to a revival of pre-disclosing funds. In 2009, I reported that ten funds were pre-disclosing on ProxyDemocracy.org.

Leading by Example: My Own Efforts Pushing Transparency and Competition

I have been interested in the idea of funds pre-disclosing their votes since at least 2007, when I read Mark Latham’s article “Proxy Voting Brand Competition,” published in The Journal of Investment Management. Mark’s work inspired Andrew Eggers to develop ProxyDemocracy.org, which Andrew discussed in this post on the Harvard Law School Forum on Corporate Governance.

Along with several others, including Bradly Coleman (now Bradley August), I lobbied many funds (including NIMB) for years, trying to convince them to pre-disclose votes so they could be posted on the internet and compared. Such disclosures probably reached a peak during the time of MoxyVote.com, prior to NIMB’s commitment. See In Celebration of MoxyVote.com.

MoxyVote allowed users to set customized voting defaults using a tiered list of advocates (your trusted “brands“). Back in 2009, I reported my voting cascade as follows:

  1. Investor Environmental Health Network
  2. Center for Political Accountability
  3. Change to Win
  4. Calvert Investments
  5. Boston Common Asset Management

I set up my account so that four days before the meeting, my stock is voted as recommended by IEHN. If IEHN has no recommendation by then, it is voted per the recommendation of CPA. And if CPA has nothing, then it looks to CtW and on down the line until one of my advocates has a position. My choice of advocates evolved as MoxyVote later offered to copy Trillium, Calvert, CalPERS, CalSTRS and others announcing their votes in advance. I could set the default position to vote with management, against them, or abstain to cover instances when none of my brands announced a vote. If I elected to abstain, MoxyVote withheld my votes from director nominees.

Helping Retail Shareholders Develop Proxy Voting Policies

Veronica Dahl, Bradley Coleman, J. Emilio Miralles, and Erez Maharshak criticized that approach because it was unrealistic to assume that retail shareholders would take the time to read the proxy voting policies of pre-disclosing funds or to distinguish “brands” by their voting records. They proposed using an algorithm on a phone app to deliver proxy voting suggestions based on correlating the user’s expressed values with pre-disclosed votes by institutional investors:

The user will indicate how activist or passive they wish to vote on each issue type by moving a slider, where the leftmost position will be as passive as possible, and the rightmost position will be as activist as possible…

Voting decisions will be based entirely on the early votes of these pre-disclosureers, their voting histories, and the user’s slider positions.

Coleman now goes by Bradley August and is still working on related work at Bloomberg, such as developing their ability to report on proxy votes, especially pre-disclosed votes.

Iconikapp.com facilitates the ability of retail shareholder to essentially develop their own proxy voting and vote their shares automatically. As described by Fisch and Schwartz in Corporate Democracy and the Intermediary Voting Dilemma:

Iconik is one of the most promising new efforts to engage investors through a platform for shareholders to indicate their voting preferences. Based on expressed preferences, it creates a voting profile, which it calls the shareholder’s “Investor Archetype,” and votes the investor’s shares in accordance with this profile. Its website provides an example. A question iconik poses to investors to find out their preferences concerns political lobbying. It asks, “Would you support proposals to report on direct and indirect lobbying and political advocacy activities?” If investors check “yes,” iconik votes their shares in favor of related proposals in the investors’ portfolio.

A larger share of Iconik’s growing influence comes from its work with advisors, fund managers, and sponsoring partners.

Leading by Example: Research Findings

The authors point out that proxy advisors have been criticized for taking a ‘one size fits all’ approach, for possible conflicts of interest stemming from proxy advisors’ consulting services (such as how to earn a higher rating), and because institutional investors potentially may blindly defer to them and violate their fiduciary duties.

Passive investors such as BlackRock, State Street, and Vanguard have been accused of underinvesting in corporate governance because they often track the same indices and compete on fees, which can be lower if advocacy efforts are lower. NBIM is the world’s largest sovereign wealth fund, the largest single shareholder in many publicly listed firms, and has a long history of integrating its ownership activities with risk management and reporting.

By disclosing both its voting intentions and reasons for dissenting votes five days prior to any shareholder meeting, NBIM moved from developing ownership policies to encouraging their adoption. The goal of the pre-disclosure was to increase transparency on how NBIM uses the fund’s voting rights and to provide more information to the market based on the belief that the market for voting advice was not fully efficient. By giving other shareholders the chance to take NBIM’s well-researched governance views on specific proposals into account, an implicit, although not stated goal, was to increase the vote share aligned with NBIM’s governance preferences.

 The researchers found the short 5-day window of disclosure before the AGM sometimes allowed sufficient time for shareholders to cast or change their votes but, in other cases, did not. For management-sponsored proposals, they focus on instances where NBIM opposed management. As discussed in the opening paragraph, such disclosures had an impact of 2.7%. NBIM had even more impact when supporting shareholder proposals, 3.7%.

NBIM’s pre-disclosure also has even more impact on proposals that pass or fail with a narrow margin, in small firms that are more difficult to understand or to obtain information on, and in companies that had a high amount of dissent in the past.

Leading by Example: More to Come?

I hope this is the first of many such studies. Who uses NBIM’s pre-disclosed votes, and how? Other funds pre-disclose votes. What influence do they have? Are pre-disclosed votes picked up by the press? Is there such a thing as brand competition by proxy voting policy? What is the impact of services such as Tumelo, iconikapp.com, and As You Vote?

Leading by Example: Related Posts on CorpGov.net

CII 2023 Fall Conference: Next Frontiers in Governance

Video Friday: SEC Proxy Voting Roundtable

Enhanced Reporting of Proxy Votes: Comments Update

Announcing Proxy Votes Improves Corporate Governance

Norges Bank: Responsible Investment

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