Thursday 27 March 2014

Fidelity's voting conflict

I blogged previously about the the tricky spot that Fidelity Investments puts itself in by making political donations to the Conservative Party. Digging around a bit I've found a second (here's the first) example where it voted in favour of a resolution seeking authority to make political donations put forward by a PLC that made political donations to the Conservative Party.

The 2010 annual report of Enquest is available here. If you turn to page 44 (or just search for 'Conservative Party') you can find the following statement:

Political and charitable donationsThe Company made charitable, social, community-related and political donations totalling US$71,145 during the year, which includes a political donation of US$13,300 to the Conservative Party.
Faced companies that make party political donations, many shareholders will oppose resolutions seeking authority to make them. But I have checked Fidelity's voting disclosure for May 2011 - which was the opportunity to vote against the company - and it voted for the resolution on Enquest's AGM agenda seeking the authority to make donations.

It should be noted that many shareholders did not feel the same way. The AGM results are no longer available on the company's website but I blogged at the time that the vote against was 30%. (For completeness, Enquest now states that it makes no party political donations, see page 17 here.)

So we have two real life examples of an asset manager that makes donations to the Conservative Party voting in favour of political donation authorities put forward by companies that made donations to the Conservative Party.

Doesn't look great does it?

Wednesday 26 March 2014

Policing the pay gap

As I've blogged before, there's a consensus amongst left-leaning corporate governance types that the bit in the UK Corporate Governance Code that says that companies should be "sensitive to pay and conditions" when setting executive pay is widely ignored. Boilerplate reporting is commonplace, and it has been this way since the Code first had this clause. And most asset managers have zero interest in this issue so non-compliance has gone without challenge.

But in recent years the disclosure requirements on companies have become more than voluntary. Companies now have to show how they have taken account of employees' views, so this is a legal reporting requirement. And that, in turn, ought to mean that if companies don't do what they are asked they can be held accountable.

So hats off to the High Pay Centre for organising a letter to the Financial Reporting Review Panel to test the water. They have also come up with a couple of real-life examples where companies have skewed the sample of employees they look at.

The HPC's blog on this is here.

Let's see what happens.

Tuesday 18 March 2014

Conflicts of interest of political donor shareholders

The more I think about it, the more troublesome I find it that Fidelity, and other institutional shareholders that make party political donations, have the right to vote on resolutions put forward by companies seeking authority to make political donations.

The important question is, how objective can an organisation that funds the Conservative Party (or any other party) be when voting on resolutions seeking authority to donate to the Conservative Party? In a real-life test case, we can see that Fidelity voted in favour of such a resolution. 

I am sure the intention behind giving shareholders a vote on political donations was not that politically networked asset managers could assist companies in making party political donations. So I think this does need dealing with.

I think there are two simple steps that would address this - 

1. Fidelity should disclose in its Stewardship Code statement that it has a conflict of interest when voting on resolutions relating to political donations. (It currently makes no mention of this conflict as far as I can see)

2. Fidelity should outsource the vote on such resolutions to a third party.  

This model could be applied to other asset managers faced with the same conflict.

More generally, maybe it would be a good idea for Fidelity and others to poll their clients on political donations. I suspect the large majority are unaware that it makes them. Given ongoing reforms to the funding of political parties, such as those relating to the unions' funding of the Labour Party, it seems a little odd that conflicts in financial relationships like those between Fidelity and the Conservatives are not being addressed.