Neuberger Berman plans to ramp up its programme of disclosing proxy votes ahead of shareholder meetings next year, a practice that it hopes will encourage an open dialogue with its companies and clients.
Neuberger Berman plans to ramp up its programme of disclosing proxy votes ahead of shareholder meetings next year, a practice that it hopes will encourage an open dialogue with its companies and clients.
The New York-based asset manager, which has USD356 billion in assets under management, says it plans to give advance notice of how the firm will vote on over 100 proposals at shareholder meetings in 2021.
In 2020, a pilot of the same scheme saw Neuberger Berman disclose 29 votes at companies including Facebook, Netflix, and Royal Dutch Shell, between April and June.
Speaking to Institutional Asset Manager, Neuberger Berman’s head of ESG investing, Jonathan Bailey, says that there is currently an “insufficient level of transparency” around asset managers’ votes on company proposals.
“Proxy votes do have value,” says Bailey, adding that steps like pre-announcing votes allows the industry to show it is “moving in a better direction”.
Few money managers currently disclose any of their votes in advance of shareholder meetings, but some institutional investors have pioneered similar schemes, including major North American pension funds CalPERs and the Canada Pension Plan Investment Board, and Norway’s sovereign wealth fund.
A steady flow of regulatory changes, including updates to the Stewardship Code and the Shareholder Rights Directive in the past year, have already come into force to encourage asset managers to become more transparent on their voting.
For Neuberger Berman, the initiative is about “not just meeting minimum regulatory requirements”, but instead “demonstrating what it means to be an active owner, casting those valuable proxies on behalf of buyers”.
This year’s pilot included the disclosure of Neuberger Berman’s intention to vote against the chairman of the aeroplane maker Boeing, Lawrence Kellner, after the “awful disasters” that occurred with the 737 MAX aeroplane.
Neuberger Berman was joined by the world’s second largest asset manager Vanguard in voting against, but Kellner remained in post after being opposed by a minority, 26 per cent, of shareholders.
“The level of votes withheld from him was still pretty significant compared to historical comparisons. It showed a clear view that we and similar shareholders had concern about the failure to oversee risk in that case,” says Bailey, who points out that one of the motivations for the initiative was to let companies and asset owners know that Neuberger Berman is not “just robo-voting”.
Many large asset managers rely at least in part on influential proxy advisors, such as ISS and Glass Lewis, to recommend how to vote in line with their fiduciary duties.
Previous research has found that the recommendations of proxy advisory firms dictate up to 25 per cent of proxy voting outcomes, which can have significant effects on smaller companies.
Bailey warns that some of these proxy advisors classify proposals and tag certain topics when it comes to environmental, social, and governance proposals.
“They’ll say, ‘That mentioned climate, so that’s a climate proposal’ or ‘This proposal mentioned gender pay, so it’s gender pay proposal’. We read the proposals, and the wording matters, the context matters, and the company’s current performance on those issues matters.”
As part of this year’s series of disclosures, Neuberger Berman chose to vote differently on two similar gender pay reporting proposals brought by shareholders first at software company Adobe, and secondly at health insurer Cigna.
In the first place, Neuberger Berman voted against a proposal calling for more reporting on gender and racial pay equity at Adobe, reasoning that the technology company is “already a leader” in the quality of its disclosures, as well as its achievement of gender pay parity in 2018.
Cigna, in Neuberger Berman’s view, had not delivered this level of transparency or equal pay, which resulted in the asset manager backing the shareholder proposal.
“We wanted to make it clear to companies that we were assessing the steps that they were actually taking on those topics, as well as trying to communicate to our clients and to asset owners that that work is being done and rigour is being undertaken,” says Bailey.
As well as expanding in size, next year’s programme is expected to shift its focus onto key issues from the past nine months.
Many businesses talked about changes to their compensation plans and capital allocation in response to the Covid-19 crisis and the Black Lives Matter protests, but Bailey says it remains to be seen what steps companies actually took.
“There are companies who we think have demonstrated real leadership in how they’ve looked at compensation during the crisis, that we want to acknowledge, assuming things continue. And there are also companies who we think have engaged in capital allocation decisions that we think are highly suspect during this period,” he says.
Bailey adds that the expanded initiative hopes to include smaller companies and companies outside of the US portfolio, including some of its Japanese and emerging markets companies.
As for the prospect of other asset managers committing to pre-disclose votes, many are wary of doing so because of the Securities Exchange Commission’s rules on shareholders forming a group, which aim to protect companies from short-term activist investors who may seek to manipulate the outcomes of votes.
“That’s obviously not what this is about at all,” says Bailey, who stresses that “we aren’t soliciting the votes of other shareholders, we’re focused on just putting our opinion out there”.
