The Role of Shareholder Voting in Stewardship

Issues frequently arise with the mechanics of voting, the role of proxy agents and the interpretation of voting signals. There is a need for greater clarity on the roles of different actors in the system – from investors to corporates and proxy advisers – and a need to reduce friction in order to enable an effective exchange of views.

The question that we set out to address in this dialogue:

How can we refine the framework to ensure timely, accurate, and transparent corporate information, fostering investor and corporate confidence?

Consistency emerges as a crucial theme in this dialogue. Both investors and companies seek to establish consistency in the voting process, emphasising the need for more uniformity in interpretation, execution and feedback. The dialogue also considered the sources of friction and a range of frustrations with the current system.

What Did We Discover?

Positive Dialogue: Investors generally expressed positive sentiments about the dialogue with corporates in the UK market. They recognised value in transparency and governance practices, distinguishing the UK from other markets. However, there was acknowledgment that improvements can be made to enhance the dialogue, as corporate experiences with investors were less positive. The increasing impact of the evolving relationship of asset managers with their clients – asset owners – would need to be considered.

Remuneration Simplification: Unsurprisingly, investors advocated for a simplification of remuneration packages, with a unanimous message underscoring the necessity for clarity in this domain. Their emphasis was not solely on the reduction of complexity but also on aligning compensation structures with performance metrics and strategy. There was a broad concern within the investment community about the efficacy and transparency of executive pay structures.

Strategic Engagement for Tangible Outcomes: It was agreed by all that efforts were needed to focus on the purpose of engagement, moving beyond engagement for its own sake. The emphasis should be on enhancing value and ensuring tangible outcomes. Increased effectiveness in engagement may involve a wider range of approaches by companies and perhaps even a reduction in the frequency of interactions, allowing a shift towards more profound discussions on topics such as social and environmental issues, where a deeper understanding from both parties will be essential to achieve meaningful results.

Perception Gap: For companies there is an issue of contention on governance professionals and investment teams being joined up. Investors are adamant there is clear coordination and almost all asset managers have publicly available voting policies and decisions rarely deviate without formal input by the investment team. While asset managers strive for consistency, there is scope for misunderstanding after early soundings, particularly on remuneration issues. This perception gap is undermining trust and needs closing

This is an extract from the Investor Forum 2023 Annual Review and captures findings from our Investor Relations Dialogue, which the Investor Forum collaborated with the Investor Relations Society on. The Best Practice Dialogues project focuses on the critical exchanges between investment managers and companies and the key dialogues that characterise the relationship: Investor Relations, Sustainability, Audit and Assurance and Voting and Governance.

For further details on the Governance and Voting Dialogue or any of the other Dialogues or on the project as a whole please get in touch.