Power to the people: Democratizing the investment landscape

This blog is from Tumelo’s Charlie Barlow. I’ve been writing about this over the past few days but not like this. Maybe this is how I’d have put it if I was 35 years younger, though I doubt I’d have had the nerve! Well done Tumelo, well done Charlie and thanks for sending this my way Georgia. You can also find this blog on Tumelo’s website


The right to vote is one of the great benefits of owning shares in world-leading corporations. Now, there’s mounting awareness of the role the shareholder can play in game-changing company decisions relating to the environment, social justice, equality and governance.


Why is the tide turning?

1. The ‘David and Goliath’ precedent has been set.

While it may seem an unwinnable endeavour for individual shareholders to have a meaningful impact on the decisions taken by large corporate boards – it has happened already. Engine No. 1, a relatively unknown US hedge fund, took on ExxonMobil in 2021, and won. Engine No. 1 was unsatisfied that the Exxon board was doing enough to reduce the energy giant’s corporate footprint, so the hedge fund gathered powerful support from investment stalwarts BlackRock, Vanguard and State Street, ultimately winning the battle to install three new climate-conscious directors to the board.

 

2. The Fink has spoken.

Larry Fink, CEO of BlackRock, was very clear in his 2022 Letter to CEOs that as an organisation, BlackRock would pursue “an initiative to use technology to give more of [its] clients the option to have a say in how proxy votes are cast at companies their money is invested in”.

Indeed, over the past few years, technological advancements via fintechs have democratized investment access for millions. So technology can do the same for voting, and rebuild a society that empowers investors to engage on issues they care about. In doing so, investment firms can build greater transparency and communicate better with customers so they can better serve people and protect our planet. Good Finking.

 

3. Everyone’s ‘woke-n up’.

In today’s environment, the desire to vote on corporate matters is not only limited to activist investors, or the so-called ‘woke-left’ but is a sentiment felt across all stakeholders be it policy makers, underlying shareholders and asset managers themselves.

 

4. The boat’s been Rocked.

As recently as last week, BlackRock announced their relatively new initiative, BlackRock Voting Choice, a response to requests from their US investors to exercise greater control over their voting for the companies in their index portfolios. With >$530bn of assets-under-management (AUM) already committed to voting their own preferences, representing a quarter of eligible assets, the uptake has been validation enough for BlackRock to seek to offer a choice in how they cast their votes to all their UK mutual funds, with a pilot underway.

And on Friday (17 June) the DWP published its outcomes from the consultation on Stewardship. The report stresses the importance of stewardship being the responsibility of trustees and empowers trustees to hold fund managers to account on voting.

Trustees are required to take ownership of stewardship. No longer can this be delegated to their fund managers, but instead, the DWP are encouraging trustees to continually engage with asset managers on their voting policies and voting records. The DWP are emboldening trustees to seek assurances from fund managers as part of the appointment process, asking them to check “whether the manager’s approach is aligned with the scheme’s approach to stewardship“ and report annually on how they will monitor their asset manager’s voting policy.

Going forward, trustees will be required to explain whether voting undertaken by fund managers reflects their own stewardship and voting policy, which in turn should take into account and act in the “best interests” of the end investor.

While in the US last week, Senator Dan Sullivan presented a Bill before the US Senate Committee on Banking, Housing and Urban Affairs requesting that

investment advisors of passively managed funds vote proxies in accordance with the instruction of fund investors, and not at the discretion of the adviser

  • thus returning the voting power back to the beneficial owners.

So, what now?

In the UK, the first step to democratizing the voting landscape is to offer shareholders the ability to articulate their expression of wish to their fund manager(s). While the US market may be slightly more advanced than the UK in terms of when any potential voting changes may be enacted in law, the direction of travel is the same in both markets.

The UK Report of the Taskforce on Pension Scheme Voting Implementation (September 2021) recommended that “all asset managers should offer pooled fund investors the opportunity to set an expression of wish”, with additional support outlined in the United Nation’s Principles for Responsible Investing, the UK Stewardship Report, and likely to come from a much-anticipated Investment Association Report later this year.


In short…

While someway short of offering shareholders an ability to ‘execute’ their voting wishes (rather than merely indicate an expression of wish) the latest noises in the market represent a great first step in returning rights to shareholders.

It’s about time more asset managers like BlackRock took notice.


Here to help

At Tumelo, we care about shareholder engagement and we have been helping pension and fund managers to give their investors a voice on issues they care about.

We are currently working with schemes to bring technological solutions that allow them to:

  1. increase engagement by casting an Expression of Wish to fund managers
  2. increasing the level of trust and loyalty with investors through visibility of voting records
  3. improve efficiency by supporting stewardship responsibilities

We welcome the outcome of the consultation from the DWP and look forward to enabling schemes to address these outcomes seamlessly.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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