Being Responsible Voters

Even before the US Primaries & UK referendum, voting has been a highly debated issue.

Executive pay, board governance and climate change have been areas of focus in recent shareholder meetings. Whilst the UN Principles of Responsible Investment (UNPRI) and Stewardship codes have asked asset owners and managers to be more pro-active on voting practices, there is typically a concern that actions fall short of grandly worded stated intentions.

For US Pension Funds, the importance of voting was established in the 1974 ERISA Act which established voting rights as assets of their pension plans. Accordingly, Russell Investments has well established, detailed policies and approaches which consider global best practice and creating long term, sustainable value for shareholders.

We use a proxy voting company (Glass Lewis) to help analyse, organise and input to our bespoke guidelines. But that is not enough. Individual situations are complex and need direct consideration. Where we have a meaningful stake in a company, our voting committee consider key issues in more detail and that can lead to us casting a different vote than that of the proxy company’s default recommendation.

Exxon Mobil’s recent AGM serves as a good illustration of this process in action. After the election of directors and auditors there were 12 proposals, with management supporting its executive compensation whilst opposing all 11 Shareholder proposals.

Generally, we support management as they have been tasked to create long term value in the company. At Exxon’s AGM, we supported the Directors’ election and the majority of the management’s recommendations. However, when scrutinising voting we know that management can lag best practice in particular on governance, compensation and disclosure. For Exxon Mobil, a summary of some of these key proposals, and their outcomes are listed below:

Exxon Mobile Annual Meeting Agenda (05/25/2016) Mgmt Rec GL Rec Russell Vote Result For Result Against
3 Advisory Vote on Executive Compensation For For Against 89% 11%
1234 4 Shareholder Proposal Regarding Independent Board Chairman Against For For 39% 61%
1234 7 Shareholder Proposal Regarding Proxy Access Against For For 62% 38%
1234 11 Shareholder Proposal Regarding Climate Change Policy and Commitment Against Against Against 18% 82%
1234 12 Shareholder Proposal Regarding Climate Change Policy Risk Against For For 38% 62%

Each of these can be considered in turn:

#3 We vote against executive compensation if there is a pay for performance disconnect, or the company maintains poor compensation practices. In our individual review, the proposal did not meet our standards and we voted against, taking a different stance from our proxy voting provider, albeit only comprising part of a small minority overall.

#4 We voted for the independence of Chairman and Executive which we consider best practice. This was not carried but is getting wider industry support.

#7 This was a successful vote for the right to place nominees on the management proxy. However we only support these motions when carefully drafted – for example we require that these limit access to shareholders who collectively have held at least 3% of the vote continuously for at least three years. The successful vote shows shareholders can exert their rights over management.

#12 We voted for the “Aiming for A” shareholder proposal that requires reporting on Impacts of Climate Change Policies. Similar resolutions have been supported by Exxon’s peers. We believe that management demonstrating their understanding of climate change risks supports long term shareholder value.

#11 In contrast to #12, we voted against this climate change action. Shareholder proposals can often be well intentioned but can suffer from weak drafting or overly politicised intentions. So whilst we may feel sympathetic to the underlying intention, it’s important to consider the actual drafting and consider whether it directly assists the creation of long term sustainable value.

Overall, we make tens of thousands of votes each year and have developed detailed guidelines around best practice. We use the support of a proxy voting company to help us aggregate our response – but can take views that are different from both management and our voting company. As the Exxon Mobil AGM shows there are many nuances to individual proposals and best practice which means that care needs to be taken in responsible voting and considering individual records.