How institutional investors vote

It's interesting to note that the only place (as far as I am aware) that you get can any comparative analysis of how UK institutional investors exercise their voting rights is from the labour movement, or more specifically the TUC. If the model of shareholder oversight that we all subscribe to is so important, it's interesting to ponder why it is that only trade unions dig into the data.

I'm glad that's the case in some respects, as it potentially gives the TU movement greater authority to speak on these issues than others. And notably this is also the case in a couple of other markets (US and Canada). Still it's a surprising quirk for a market that is supposed to believe in this model.

That observation aside, what does this year's survey (PDF) tell us? The real story, as the TUC points out, there's a real split in investor voting. Some investors (asset managers, principally) are much more likely to vote in favour of management than others. In the sample some investors voted for 70% plus of all management resolutions, and another group voted for under 40%. That's a pretty sharp divide, especially given that these were 'contentious' resolutions (as evidenced by the voting results companies disclosed).

Needless to say this also reads across types of issues. Those investors most likely to vote in favour of management were more likely to vote in favour of remuneration policies and for directors' re-elections. The names that crop up most regularly on the 'vote with management' side of the graph are the likes of M&G, Hermes, Fidelity and SWIP. One of the things I did was compare this with some analysis we've done on investor voting on shareholder resolutions on ESG issues, and notably the same types of names appear as voting against such resolutions.

In summary this suggests to me a relatively simple conclusion - it's a house style. Some investors pitch themselves as more pro-company in their voting than others. That's all fine and dandy and their choice of course. I suspect some (all?) would probably say that other aspects of engagement are more important. My personal view is that this puts a lot of weight on the ability to get movement from companies just by meeting with them or writing to them. In addition my own experience of engagement is that some of the 'wins' claimed to justify voting with management are pretty meagre. But we can agree to disagree.

There are some important caveats. It's not a big sample of investors, because some asset managers still refuse to take part in the survey. And it's not a particularly large sample of votes. Having done some fairly extensive voting analysis at work, I think that more respondents would have revealed a larger group of asset managers who vote in favour of management a lot. So unfortunately those who do respond are somewhat punished by those who don't!

The final question we ought to ask is whether the TUC could have produced this analysis without asking managers to voluntarily provide the info (ie relying on public disclosure). I spoke to Janet, the TUC's policy officer on this stuff, about this yesterday and she said definitely not. Yet the investment industry still claims that a voluntary approach is working. Ho hum.