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2022 January Proxy Governance Update

25 January 2022

2021 Season Review

Welcome to Boudicca’s 2021 end of season review.

Anne Marie Clarke Anne-Marie Clarke Head of Corporate Governance

As we begin a new year, with renewed optimism, we reflect on what has been another year of high activity and debate for Boards and investors. We have witnessed and heard first-hand experiences of Boards navigating and steering their companies through waves of change. And the ultimate change is a change in ownership structure. We have been involved in many M&A campaigns, even our own parent company, Equiniti, demonstrating the changing shape of UK plc over 2021.

Whether companies and stakeholders felt ripples as a lasting effect of the experiences of 2020, or whether they had an experience more akin to riding the great oceans and facing the difficult conditions as Ernest Shackleton did on leading the ‘Endurance’ expedition to the Antarctic, what is certain is that 2021 provided another eventful year as far as shareholder voting was concerned. 

Turning towards the future, we saw a year where COP26 was high on everyone’s agenda, demonstrating that medium and long term priorities required focus and action now. We listened to various stakeholders as part of our advisory and shareholder engagement work, investors and proxy advisory agencies amongst them. And so it seems fitting that we share with you our review of 2021 AGM voting and conclude with our expected areas of focus for 2022. With thanks to the author of this article, Cormac Chesser, Corporate Governance Manager.

Analysing The Past, To Steer The Future

By Cormac Chesser, Corporate Governance Manager

This review provides an overview of past voting behaviour at FTSE 350 meetings amongst major investors who publicly disclose their voting behaviour, to provide greater insight on the trends in voting at FTSE 350 AGMs observed over the 2021 AGM season. The review points to likely trends over the 2022 AGM season and complements other research from EQ that can be found on the ‘Preparing for Your 2022 AGM’ webpage.

For more information about the source and selection of data please refer to the section "About the Data".

Analysis Of The Election Of Directors

“…the general trend has been towards greater support for resolutions to elect directors over the four years”

Below, we summarise the level of support for resolutions to appoint directors shown by the sample of investors at FTSE 350 AGMs over the past four proxy seasons (2018-2021).

Table 1: Top 20 Investors Voting on Election of Director Resolutions 2018-2021

Investor *

2018 % For

2019 % For

2020 % For

2021 % For

2021 Above or Below Average (93.7%)

Overall Average For Investor

BlackRock

93.0 ↑

93.3 ↑

93.4 ↑

89.3 ↓

92.3 ↑

Vanguard

98.4 ↓

98.4 ↓

99.2 ↑

99.3 ↑

98.8 ↑

State Street

96.6 ↑

97.5 ↑

95.9 ↓

95.1 ↓

96.3 ↑

Legal & General

90.9 ↓

94.2 ↑

95.3 ↑

93.7 ↑

93.5 ↑

UBS

92.2 ↓

93.4 ↓

94.7 ↑

94.1 ↑

93.6 ↑

Schroders

98.0 ↑

96.1 ↓

98.1 ↑

98.7 ↑

97.7 ↑

Allianz

93.4 ↓

94.5 ↓

96.5 ↑

96.0 ↑

95.1 ↑

Dimensional

97.5 ↓

98.2 ↑

98.2 ↑

96.6 ↓

97.6 ↑

abrdn

97.4 ↓

97.2 ↓

98.8 ↑

98.8 ↑

98.1 ↑

HSBC

98.4 ↓

98.5 ↑

98.3 ↓

98.6 ↑

98.5 ↑

Aviva

93.7 ↑

92.0 ↓

95.1 ↑

93.1 ↓

93.5 ↑

M&G

99.4 ↑

99.7 ↑

99.5 ↑

99.0 ↓

99.4 ↑

Janus Henderson

99.7 ↑

99.4 ↑

99.4 ↑

99.0 ↓

99.4 ↑

BMO

94.6 ↓

95.7 ↓

96.2 ↑

96.8 ↑

95.8 ↑

California State Teachers' Retirement System (CalSTRS)

27.1 ↓

31.7 ↓

58.1 ↑

65.5 ↑

45.6 ↓

Royal London

89.1 ↓

90.3 ↓

93.0 ↑

95.0 ↑

91.9 ↓

Ohio Public Employees Retirement System (OPERS)

79.0 ↓

84.1 ↓

86.5 ↑

86.9 ↑

84.1 ↓

Maryland State Retirement and Pensions

97.4 ↓

98.2 ↑

98.6 ↑

97.9 ↓

98.0 ↑

Railpen (RMPI)

89.7 ↓

89.7 ↓

92.4 ↑

95.1 ↑

91.7 ↓

Camden Pension Fund

78.1 ↓

80.2 ↓

82.3 ↑

85.6 ↑

81.6 ↓

Overall Average

90.2

91.1

93.5

93.7

 

92.1

* The table has been sorted based on assets under management (AUM) from largest to smallest.

↑ indicates an average or above level of support for a given investor, and ↓indicates below-average support for a given investor over the four years.

We also include an assessment of the overall level of support from the sample as a whole, as well as a comparison of their average support in 2021, compared to the average for the sample as a whole.

As shown in the table above, the general trend has been towards greater support for resolutions to elect directors over the four years, with the overall average growing from 90.2% to 93.7%. This is reflected in examples like Vanguard, abrdn and Schroders, who have all shown increasing levels of support over the four years.

Some investors increased opposition over the past year, however. Noteworthy examples include Blackrock, Aviva and State Street, who all showed a decline in overall support for the election of directors during the 2021 proxy season compared to their four-year average. Other noteworthy examples include Legal & General, whose level of support had been rising steadily before dropping again in 2021. Public employee pension funds like OPERS and the London Borough of Camden, while showing steadily greater support over the period, showed less support than the average for the sample in 2021.

Analysis Of The Approval Of The Remuneration Report

“…a general increase in opposition during 2021 compared to 2020”

Table 2: Top 20 Investors Voting on Say on Pay Resolutions 2018-2021

Investor *

2018 % For

2019 % For

2020 % For

2021 % For

2021 Above or Below Average (81.3%)

Overall Average

BlackRock

91.9 ↑

91.5 ↑

94.1 ↑

85.5 ↓

90.8 ↑

Vanguard

99.2 ↑

97.6 ↑

97.2 ↓

95.5 ↓

97.4 ↑

State Street

91.9 ↑

90.8 ↓

94.6 ↑

89.7 ↓

91.8 ↑

Legal & General

82.1 ↑

80.4 ↑

77.9 ↓

74.7 ↓

78.8 ↓

UBS

86.2 ↑

76.3 ↓

85.8 ↑

83.2 ↑

82.9 ↑

Schroders

86.3 ↑

80.5 ↓

83.7 ↓

86.6 ↑

84.3 ↑

Allianz

85.2 ↓

85.9 ↓

90.0 ↑

84.1 ↓

86.3 ↑

Dimensional

79.6 ↓

80.8 ↓

86.3 ↑

80.2 ↓

81.7 ↓

abrdn

88.5 ↑

87.5 ↓

89.6 ↑

86.6 ↓

88.1 ↑

HSBC

87.3 ↓

87.5 ↓

88.7 ↑

86.6 ↓

87.5 ↑

Aviva

58.6 ↓

58.1 ↓

72.0 ↑

59.9 ↓

62.2 ↓

M&G

96.0 ↑

92.5 ↑

75.4 ↓

91.7 ↑

88.9 ↑

Janus Henderson

97.5 ↑

93.4 ↓

95.0 ↑

90.2 ↓

94.0 ↑

BMO

87.9 ↑

83.7 ↓

86.8 ↑

79.3 ↓

84.4 ↑

California State Teachers' Retirement System (CalSTRS)

97.0 ↑

93.9 ↓

98.8 ↑

94.3 ↓

96.0 ↑

Royal London

64.0 ↓

65.6 ↓

72.8 ↑

80.4 ↑

70.7 ↓

Ohio Public Employees Retirement System (OPERS)

88.7 ↑

91.3 ↑

93.2 ↑

80.8 ↓

88.5 ↑

Maryland State Retirement and Pensions

84.9 ↓

87.4 ↑

90.2 ↑

84.4 ↓

86.7 ↑

Railpen (RMPI)

43.2 ↓

60.1 ↑

67.2 ↑

65.5 ↑

59.0 ↓

Camden Pension Fund

29.9 ↓

28.6 ↓

32.7 ↓

47.7 ↑

34.7 ↓

Overall Average

81.3 ↓

80.7 ↓

83.6 ↑

81.3 ↓

 

81.7

* The table has been sorted based on assets under management (AUM) from largest to smallest.

↑ indicates an average or above level of support for a given investor, and ↓ indicates below-average support for a given investor over the four years.

The picture for the Remuneration Report is quite different, with a general increase in opposition during 2021 compared to 2020 (on average 81.3% compared to 83.6%), and dropping back to 2018 level years (81.3%). Noteworthy examples include Blackrock, whose overall support during 2021 (85.5%) decreased substantially in comparison to 2020 (94.1%) and in comparison to their overall average (90.8%).

It is worth noting that Blackrock’s overall level of support for Say on Pay resolutions during 2021 was greater than the average for the sample (81.3%) and the sample overall (81.7%). London Borough of Camden (47.7%) and Aviva (59.9%) showed the lowest levels of support, with the greatest support shown by Vanguard (95.5%) and CalStrs (94.3%). This shows the range of voting behaviour evident on what is often the most controversial resolution for approval at FTSE 350 AGMs.

Analysis Of The Approval Of The Remuneration Policy

“…Overall support levels amongst the sample group dropped by more than 10 percentage points”

Table 3: Top 20 Investors Voting on Remuneration Policy Resolutions 2018-2021

Investor

2018 % For

2019 % For

2020 % For

2021 % For

2021 Above or Below Average  (69.2%)

Overall Average

BlackRock

94.4 ↑

89.3 ↑

91.1 ↑

80.9 ↓

88.9 ↑

Vanguard

98.5 ↑

100.0 ↑

98.6 ↑

92.6 ↓

97.4 ↑

State Street

93.2 ↑

86.4 ↓

93.3 ↑

82.6 ↓

88.9 ↑

Legal & General

79.7 ↑

83.1 ↑

62.3 ↓

40.9 ↓

66.5 ↓

UBS

87.7 ↑

83.8 ↑

87.1 ↑

68.1 ↓

81.7 ↑

Schroders

85.5 ↑

74.5 ↓

85.8 ↑

77.6 ↓

80.9 ↑

Allianz

90.7 ↑

83.7 ↓

89.5 ↑

80.6 ↓

86.1 ↑

Dimensional

82.8 ↑

85.4 ↑

85.6 ↑

69.6 ↓

80.9 ↑

abrdn

88.7 ↑

84.1 ↑

82.2 ↓

75.6 ↓

82.7 ↑

HSBC

79.2 ↓

81.5 ↑

80.8 ↑

75.5 ↓

79.3 ↑

Aviva

74.0 ↑

67.7 ↑

73.3 ↑

52.2 ↓

66.8 ↓

M&G

92.9 ↑

90.5 ↓

94.8 ↑

87.1 ↓

91.3 ↑

Janus Henderson

94.8 ↑

89.3 ↓

96.2 ↑

87.0 ↓

91.8 ↑

BMO

83.3 ↑

85.1 ↑

78.4 ↑

62.8 ↓

77.4 ↓

California State Teachers' Retirement System (CalSTRS)

95.8 ↑

90.0 ↓

96.8 ↑

82.9 ↓

91.4 ↑

Royal London

66.7 ↓

76.1 ↑

72.8 ↓

78.5 ↑

73.5 ↓

Ohio Public Employees Retirement System (OPERS)

90.5 ↑

95.0 ↑

95.7 ↑

68.8 ↓

87.5 ↑

Maryland State Retirement and Pensions

84.5 ↑

85.4 ↑

88.4 ↑

72.6 ↓

82.7 ↑

Railpen (RMPI)

47.1 ↓

50.0 ↑

56.9 ↑

37.7 ↓

47.9 ↓

Camden Pension Fund

14.3 ↓

19.6 ↑

20.3 ↑

9.8 ↓

16.0 ↓

Overall Average

81.2 ↑

80.0 ↑

81.5 ↑

69.2 ↓

 

78.0

* The table has been sorted based on assets under management (AUM) from largest to smallest.

↑ indicates an average or above level of support for a given investor, and ↓ indicates below-average support for a given investor over the four years.

A marked increase in severity is even more evident when one looks at voting trends on Remuneration Policies proposed during 2021. Overall support levels amongst the sample group dropped by more than 10 percentage points to 69.2% from 81.5% in 2020, a marked reduction in support, with nearly every investor in the sample showing increased opposition. The only outlier here is Royal London, who showed greater support during 2021 (78.5%) than their overall average (73.5%), though it is worth noting that Royal London is traditionally quite an active proxy voter, as reflected in their low overall support for Remuneration Policy resolutions.

Analysis Conclusion

To conclude, the patterns noted above cannot be divorced from the impact of the COVID pandemic on both business operations and shareholder engagement. It remains to be seen if the increase in opposition to remuneration resolutions, and Remuneration Policies, in particular, will perpetuate itself into the future. Certainly, UK plcs should take note of this trend, as it may presage greater assertiveness on the part of investors where a Company’s remuneration practices do not comply with their expectations. Furthermore, while we do not expect the general increase in support for the election of director resolutions to decline precipitously, growing investor focus on governance of a given company’s environmental and social impacts is likely to result in opposition to the resolutions to appoint directors in the coming years.

2022 – A Look To The Future Of Investor Stewardship Policies

Looking to the future, we note that many of the investors included in the sample have stewardship pages on their websites. There you can find links to their stewardship, engagement and proxy voting policies, as well as their stated engagement priorities for 2022.

Table 4: Top 20 Investors Stewardship Webpages

Investor

Stewardship Section

BlackRock Inc.

link

Vanguard Group, Inc.

link

BMO Global Asset Management

link

HSBC Global Asset Management

link

Aviva Investors

link

Royal London Asset Management

link

London Borough of Camden Pension Fund

N/A

M&G Investments

link

Legal & General

link

UBS Asset Management

link

SSgA Funds Management, Inc. (State Street)

link

abrdn

link

Dimensional Fund Advisors

link

Schroders PLC

link

Ohio Public Employees Retirement System (OPERS)

N/A

California State Teachers' Retirement System (CalSTRS)

link

Allianz Global Investors

link

Janus Henderson Group PLC

link

Maryland State Retirement and Pension System

N/A

Railpen (RMPI)

link

Below we summarise the engagement priorities of the major institutional investors:

Blackrock

In their engagement priorities, Blackrock notes that they focus on:

  • Board quality and effectiveness
  • Climate and natural capital
  • Corporate strategy, purpose and financial resilience
  • Incentive alignment with value creation
  • How the Company impacts people.

Given their areas of focus, it seems likely that they will continue to oppose the reappointment of directors whose performance under one of these headings they find lacking. The same is true for executive remuneration, and their focus on value creation should provide a significant hint to UK plcs as to what their expectations will be in that regard.

Vanguard

This investor has four principles of governance they consider to be key in the long-term success of companies and their investors. Those are:

  • Board Composition, as they believe that ‘good governance begins with a great board of directors’
  • Risk and strategy oversight, as ‘every strategy involves risk, and every risk presents strategic opportunity’
  • Compensation, which they see as fundamental to ‘sustainable, long-term value for a company’s investors’
  • Governance structures, as shareholders ‘should be able to hold directors accountable’.

Given their generally moderate proxy voting record, we expect them to continue to reserve their right to express dissent for what they consider egregious breaches of the principles noted above.

Aviva

In their investment philosophy statement, Aviva notes that they integrate ESG factors in their investment approach across asset classes, and use their voting power ‘to ensure that companies are being run for those that own them – not simply those that run them’.

Accordingly, it seems likely that they will continue to show a high level of opposition to breaches of what they consider best practice for UK plcs.

Legal & General

In their Responsible Investment section, Legal & General state their belief that ‘environmental, social and governance (ESG) factors – such as climate change, social inequality and executive pay – are financially material. So we see responsible investing as the incorporation of ESG considerations into investment decisions.’

UK plcs can expect Legal & General to continue to show a high level of opposition to breaches of UK corporate governance best practice over the coming proxy season, particularly in terms of executive remuneration.

Concluding With Our Expectations For 2022

To conclude, UK plcs can expect continued scrutiny of executive remuneration in light of the continuing COVID pandemic. A related focus will be the management of stakeholder relations, particularly where significant numbers of staff were made redundant or furloughed because of the pandemic. As well as workforce relations, relations with shareholders, in terms of suspended dividends, and with the state, in terms of financial supports, will also be key areas of focus for institutional investors as they make voting decisions.

Together with COVID pandemic impacts, we also expect increased scrutiny of company disclosures related to climate change. This is particularly so with the mandatory disclosure for Britain’s largest businesses of climate-related risk in line with the Taskforce for Climate-related Financial Disclosures (TCFD), which comes into force in April 2022.

Diversity is also likely to be another key driver of shareholder dissent. While Board diversity at FTSE 350 companies has generally come into line with market expectations, many investors wish to see similar levels of diversity at the executive committee and direct report levels of senior management. This may prove quite challenging for some companies, though it is worth bearing in mind the purpose of this expectation. Through encouraging diversity at senior management level, the necessary pool of diverse candidates for Board seats can be formed, leading to a broader and deeper pool of potential non-executive directors in future years. Given the future dividend that will accrue to the FTSE 350 as a whole through this endeavour, it will be of mutual benefit to both companies and shareholders to work with one another to achieve this goal.

Accordingly, UK plcs cannot expect support for resolutions to appoint directors if they have not addressed the matters noted above in a manner satisfactory to their institutional shareholders. We expect scrutiny of a given company’s governance of its environmental and social impacts to increase over the coming years. Climate change, diversity, stakeholder relations, pay parity and the ratio between CEO and worker pay packets are likely to provide the substance of significant debate and differences of opinion over the years to come.

And Finally…

As we reflect on what we have seen, and what we expect to come, we invite you to review our most recent articles on the E, S and G of ESG.

Throughout 2022 we will be revisiting key governance topics and areas of interest to all of those involved in ESG. A solid corporate governance framework, adapting and reacting to the drivers and changes in societal expectations, provides the fundaments and support for delivering long term sustainable success.​

To find out how Boudicca can support your business, please contact info@boudiccaproxy.com.

About The Data

Source Data

The source data comes from ProxyInsight, who collated the data underlying analysis from publicly available disclosure of investor voting behaviour. Due to differing disclosure requirements in different jurisdictions, there is variability in the available data. For your information, we summarise the requirements in each jurisdiction and their impact on disclosure.

United States

In the United States, mutual funds and other investment management companies are required to disclose their proxy voting decisions by submitting an N-PX form with the Securities and Exchange Commission (SEC). Filings are for the year June to June, and the deadline for submitting the N-PX form is 31 August. As a result, filings for US investment managers are quite comprehensive, giving a clear picture of trends in voting behaviour on the part of US institutional investors.

Europe

The Shareholder Rights Directive II (SRD II) governs the disclosure of shareholder voting behaviour in the European Union (EU). The expectation is quite general, however, merely stating that investors should disclose voting behaviour unless related to insignificant matters or immaterial holdings.

As a result, disclosure is currently much less uniform in Europe than in the US. On 19 October 2021, the European Banking Authority (EBA) announced that it had published final draft standards for disclosure by investment firms of their investment policy, focused on the exercise of their voting rights. Accordingly, such disclosures should become more standardised shortly.

UK

Currently, disclosure requirements in the UK derive from SRD II, which was transposed into UK law before departure from the EU. The requirements are defined in the Financial Conduct Authority’s (FCA) Handbook, under COBS 2.2B.6-7, which require a firm’s engagement policy to describe how the firm exercises its voting rights and to provide annual disclosure of voting behaviour in line with SRD II.

Scope of the Data

In the interests of comparability, brevity and relevance, we have limited the sample of investor voting behaviour based on the following constraints.

Time Period

The review focuses on voting at the AGMs of FTSE 350 companies held between January and September of each year for the last four years (2018-2021). The January to September period allows for delays in disclosure up to year-end 2021. The 2018-2021 period provides a baseline for investor voting trends before the full impact of the Pandemic on the global economy and investor voting behaviour. On average, 300 meetings of FTSE 350 companies occurred in this period, meaning that it captures the vast majority (approximately 85%) of FTSE 350 AGMs held each year.

Resolutions

The analysis focuses on the most significant resolutions traditionally presented at FTSE 350 AGMs; election of directors, the Remuneration Report or say on pay (SoP), and the Remuneration Policy. These resolutions were selected as they are the ones most likely to see significant shareholder dissent based on concerns around corporate governance or company performance, amongst other areas of investor concern.

Meetings Voted

To gain greater insight into investor voting decisions, the review focuses on investors who consistently disclosed voting behaviour in approximately 1/3 of all meetings in each period (approximately 100 meetings).

Resulting Sample

The constraints noted above provide a group of approximately 60 investors, and in the interests of brevity, we have decided to focus on the top 20 investors by meetings voted.

The sample includes:

  • 11 UK investors, including familiar names like Legal & General and abrdn
  • 7 US investors, including familiar names like Blackrock and Vanguard, as well as some investors who may be less familiar to UK plcs, like the Ohio Public Employees Retirement System (OPERS)
  • 2 European investors, namely Allianz and UBS.

The sample provides a good cross-section of the various types of institutional investors with a significant interest in the UK market. While the trends identified in their voting behaviour are not representative of every single investor in the FTSE 350, they can tell us much about trends in voting at FTSE 350 AGMs in the round.


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The Report does not constitute a comprehensive or accurate representation of past or future activities of any company or their shareholders but rather is designed to provide an overview thereof. All data and descriptions of any company, business, markets or developments mentioned in this Report, maybe a combination of current, historic, complete, partial or estimated data. The Report may include statements of opinion, estimates and projections concerning the anticipated future behaviour of shareholders and as to the market for those companies’ products and services. These may or may not prove to be correct.

This Report is not, and should not be, construed as a recommendation or form of offer or invitation to subscribe for, underwrite or purchase securities in any company or any form of inducement to engage in investment activity.

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