Tag Archives | State Street

Main Street Investors: Battle Coming

The battle over Main Street Investors could determine the future of the American economy for decades to come. According to Cydney Posner of Cooley PubCo, on one side are those who believe investors must focus on maximizing financial return and management knows best. On the other side are those who want to broaden the focus of investors to include environmental, social and governance (ESG) issues, with everyone participating in the debate. Continue Reading →

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Shareholder Collaboration

Shareholder Collaboration is a new ECGI working paper by Jill Fisch and Simone M. Sepe. Fisch is one of my favorite researchers, being insightful and less predictable than many of those in the primary academic hubs of corporate governance (Harvard, Stanford, and Delaware). In Shareholder Collaboration, the authors discuss the growing importance of a collaborative model, in contrast to models based on management power or shareholder power. (download paper in pdf) Continue Reading →

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NAM: Stop Supporting ‘Main Street Investors’ Coalition Say Real Investors

NAM Board Targeted

Investors led by Walden Asset Management, New York Common and the California State Teachers’ Retirement System (CalSTRS) called on 45 companies sitting on the Executive Committee and Board of the National Association of Manufacturers (NAM) to end the trade association’s attacks on shareholders.

The investors’ letter asks the companies to distance themselves from NAM’s recent attempts to discredit shareholder engagement, particularly on climate change. These efforts have been undertaken primarily through NAM’s membership in the Main Street Investors Coalition (MSIC) and through a report NAM funded and distributed that wrongly asserts that shareholder resolutions diminish company value. MSIC represents no investors. In my opinion, it is a front group for corporate managers attempting to generate fake news, stirring public opinion against investor rights.

Quotables on NAM

“The irony is that many companies on the NAM board are active business leaders on climate change,” said Timothy Smith, Director of ESG Shareowner Engagement at Walden Asset Management.

They understand the very real risk to our environment and have active forward-looking policies and programs on climate. Yet their dues to NAM are funding an aggressive attack against the very investors they meet with regularly to address climate change. We are appealing to these companies to clearly state their opposition to these positions taken by NAM and Main Street Investors Coalition. It is important to do so to protect their company reputations and integrity.

“Environmental risk consideration is part of the evolution of investing. Whether a retail or institutional investor, assessing the risks of investments is a standard practice,” said CalSTRS Portfolio Manager in Corporate Governance Aeisha Mastagni.

NAM appears out of touch with its own constituents. Over the last decade more than 75 percent of the environmental-related proposals CalSTRS filed were withdrawn because the companies were willing to negotiate a mutually agreeable outcome.

The Letter’s Key Paragraph

The MSIC perpetuates the myth that incorporating environmental, social and governance (“ESG”) factors inherently conflicts with protecting and advancing shareholder value. However, the 1,200 members of the United Nations-backed Principles for Responsible Investment – including Fidelity, BlackRock, Vanguard and State Street – with over $70 trillion in assets under management, have committed to consider ESG issues in the investment decision-making process since these factors may affect shareholder value. There is ample evidence that incorporating ESG issues into investment decisions is part of responsible management as a fiduciary. Moreover, hundreds of global companies demonstrate leadership and transparency on sustainability issues. These companies’ action are not guided by “political and social interests” but by what is good for their investors and stakeholders over the long term.

NAM Background

NAM is a trade organization that represents and advocates for manufacturers across industrial sectors. Many NAM members are taking active steps on climate issues as a result of shareholder engagement. Nevertheless, NAM has established significant ties to MSIC, which purports to speak for investors, but which instead appears to be engaged in an attempt to undermine shareholders’ rights by denouncing ESG-related shareholder proposals and by suggesting shareholders’ concerns are politically motivated.

Why NAM is Attacking Shareholders Now

The investor letter noted that, “The emergence of MSIC and the release of this report come at a time when investor support for shareholder proposals is growing” because the “business case behind them is clear and convincing.” The signatories requested that the companies explain their views on MSIC’s public attempts to discredit investor engagement and shareholder proposals.

Over 80 institutional investors, including state and city pension funds, investor trade associations, investment firms and mutual funds, foundations and religious investors added their organization’s names in support of the letter.

Investors are actively engaging companies in their portfolios as concerns over climate risk grow. Most recently, investors representing approximately $30 trillion urged some 150 companies to reduce their greenhouse gas emissions, disclose their assessment of climate risks, and explain what actions they plan in response to climate risk.

Investors like BlackRock, Vanguard and State Street have made it clear that they want the companies in which they own shares to address climate risk.

“It is extremely bad timing for NAM and by implication the members of its board to be attacking investors addressing climate change at a moment when we desperately need to work together,” said Smith.

Historical Perspective

Since I am older than most of my readers, I offer the following historical perspective. The investor letter sent to the Executive Committee and Board NAM is correct in assuming that shareholder rights are under attack because their proposals are winning. The current fight on climate change and social issues reminds me of an older one on proxy access. In 1977 the SEC held a number of hearings to address corporate scandals. At that time, the Business Roundtable (BRT) recommended amendments to Rule 14a-8 that would allow access proposals, noting such amendments

… would do no more than allow the establishment of machinery to enable shareholders to exercise rights acknowledged to exist under state law.

The right to pursue proxy access at any given company was uncontroversial. In 1980 Unicare Services included a proposal to allow any three shareowners to nominate and place candidates on the proxy. Shareowners at Mobil proposed a “reasonable number,” while those at Union Oil proposed a threshold of “500 or more shareholders” to place nominees on corporate proxies.

One company argued that placing a minimum threshold on access would discriminate “in favor of large stockholders and to the detriment of small stockholders,” violating equal treatment principles. CalPERS participated in the movement, submitting a proposal in 1988 but withdrawing it when Texaco agreed to include their nominee.

Early attempts to win proxy access through shareowner resolutions met with the same fate as most resolutions in those days – they failed. But the tides of change turned. A 1987 proposal by Lewis Gilbert to allow shareowners to ratify the choice of auditors won a majority vote at Chock Full of O’Nuts Corporation and in 1988 Richard Foley’s proposal to redeem a poison pill won a majority vote at the Santa Fe Southern Pacific Corporation.

In 1990, without public discussion or a rule change, the SEC began issuing a series of no-action letters on proxy access proposals. The SEC’s about-face was prompted by fear that “private ordering,” through shareowner proposals was about to begin in earnest. It took more than 20 years of struggle to win back the right to file proxy access proposals.

Conclusion

Let’s hope the current attack on shareholder rights by NAM and the fake Main Street Investors Coalition does not set investor rights back by another 20 years.

    
 
 

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Part 4 28th Annual SRI Conference

Part 4 28th Annual SRI Conference in San Diego. Search  on Twitter to see more posts. See Parts 1, 2, and 3. Yes, I know, this conference was held months ago but I’m still digesting… maybe until the next one. I could spend a productive year just exploring links to the work of the speakers. Mark your calendar for November 1-3, 2018. The SRI Conference returns to the Broadmoor in Colorado Springs. Get on the mailing list. Continue Reading →

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Ron O’Hanley: Video Friday

Ron O’Hanley

Ron O’Hanley

Ron O’Hanley, President and CEO of State Street Global Advisors (SSGA), was recently hosted at the John L. Weinberg Center for Corporate Governance at the University of Delaware.

According to the Weinberg Center, SSGA is a recognized leader in corporate governance. Ron O’Hanley gave an inspiring talk as part of the Center’s 2017 Corporate Governance Symposium. Mr. O’Hanley discussed SSGA’s focus on effective, independent board leadership and his recent call on boards to consider ESG impacts on long-term value creation. Continue Reading →

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"Say on Pay" to be Annual

I believe ISS/Risk Metrics created a policy on the Frequency of Advisory Vote on Executive Compensation (Management “Say on Pay”), a new proxy item required under The Dodd-Frank Wall Street Reform and Consumer Protection Act.

Their Recommendation: Vote FOR annual advisory votes on compensation, which provide the most consistent and clear communication channel for shareholder concerns about companies’ executive pay programs.

Rationale for Update: The Dodd-Frank Act, in addition to requiring advisory votes on compensation (aka management “say on pay” or MSOP), requires that each proxy for the first annual or other meeting of the shareholders (that includes required SEC compensation disclosures) occurring after Jan. 21, 2011, include an advisory voting item to determine whether, going forward, the “say on pay” vote by shareholders to approve compensation should occur every one, two, or three years.

In line with overall client feedback, ISS is adopting a new policy to recommend a vote FOR annual advisory votes on compensation. The MSOP is at its essence a communication vehicle, and communication is most useful when it is received in a consistent and timely manner. ISS supports an annual MSOP vote for many of the same reasons it supports annual director elections rather than a classified board structure: because this provides the highest level of accountability and direct communication by enabling the MSOP vote to correspond to the majority of the information presented in the accompanying proxy statement for the applicable shareholders’ meeting. Having MSOP votes every two or three years, covering all actions occurring between the votes, would make it difficult to create the meaningful and coherent communication that the votes are intended to provide. Under triennial elections, for example, a company would not know whether the shareholder vote references the compensation year being discussed or a previous year, making it more difficult to understand the implications of the vote.

From my understanding, ISS held a conference call on the new policy. I wasn’t on the call but I understand 250 were. I also understand that during the call it came out that CalSTRS, State Street and Vanguard all support annual votes. CalSTRS was expected but State Street and Vanguard supporting annual votes is likely to mean greater success. Annual vote seems headed for the default position.

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Major Shift in Proxy Voting Policy at State Street

Last year Walden Asset Management filed a resolution at State Street Global Advisors (SSgA) seeking a proxy review. While SSgA successfully obtained a “no-action” letter from the SEC, their voting practices were still the subject of a debate at the annual meeting. This year United for a Fair Economy picked up the torch and filed a similar appeal. This time, SSgA responded positively and UFE has withdrawn its resolution.

Previously, SSgA voted automatically Against ALL shareholder resolutions on environmental and social issues, whether the issue affected shareholder value or not. Over the years this record had become increasingly controversial and was challenged by a number of SSgA clients including pension funds in Europe as well as investors and environmental groups here in the USA. An internal review found SSgA found its voting in stark contrast to State Street’s own forward looking record on the environment and other CSR issues.

State Street’s review included a comparison to other mainstream investment firms which are competitors. It found that the SSgA proxy voting was an “outlier” in comparison to these firms records. According to Timothy Smith of Walden Assets, SSgA will now abstain if the resolution’s economic impact case is not clear, but will vote FOR resolutions where a strong case regarding how this affects shareholder value is made. This is very similar to Risk Metrics position. SSgA notes it is understaffed to do robust proxy voting so may add staff and of course will look seriously at recommendations of proxy advisory firms they use.

Our congratulations to Walden’s Timothy Smith and to Mike Lapham of Responsible Wealth. This is a significant shift in proxy voting by a major firm. It is great to see SSgA now more fully addressing its proxy voting responsibilities.

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