Investment managers defer to management: report

The near-collapse of the American financial system, and the global economic downturn it has caused, have proven the risks associated with lax corporate governance, yet many Canadian investment firms are doing little to hold management’s feet to the fire, according to a study on proxy voting.

The eighth annual Key Proxy Vote Survey, conducted by the Shareholder Association for Research and Education (SHARE), found a “significant increase” in the willingness of investment managers to acquiesce to management recommendations on proxy votes.

This deference to management on environmental, social and governance issues was not just found among retail investment managers, but among pension fund managers as well.

“In Canada, we knew there were serious problems with a negative impact on investment returns before the proxies were voted in 2008,” says Laura O’Neill, director of law and policy, SHARE, pointing to the collapse of the non-bank ABCP markets and massive write-downs in the financial sector.

“The response from private sector pension fund money managers appears to have been to require less of companies on governance.”

SHARE describes itself as a “national social enterprise dedicated to improving institutional investment practices that protect the long-term interests of pension plan members, beneficiaries and society in general.”

The latest survey of pension fund managers found a new record low in voting along the lines of SHARE’s proxy recommendations. Of the 32 firms that participated in the survey, just 29% of votes cast on 37 proxy ballots met with SHARE’s approval, down from the previous low of 44%.

“Last proxy season, a handful of surveyed voters maintained their vigilance on key issues,” says Peter Chapman, executive director of SHARE. “But others missed many opportunities to send a clear message to management when they voted for proposals that were not in shareholders’ best interests.”

SHARE did say it was encouraged to find an increase in the number of pension plans that have given their investment managers voting direction on how to vote key issues. The percentage of investment managers exercising their own discretion on votes fell to 63%, compared to 71% in 2007.

The 32 firms that participated in the 2008 SHARE survey manage $453 billion in pension assets.

A PDF of the full report can be downloaded from the SHARE website.

(01/29/09)