As a component of investment managers’ engagement activities, pre-declaration of AGM vote intentions is an under-used, but emerging approach.
In May, Schroders pre-declared its annual general meeting (AGM) voting intentions for a range of companies, including Alphabet, Amazon and Meta. The London-headquartered investment firm said pre-declaration of its voting intentions followed prior engagement with the companies and the “escalation is the next step of our active ownership process”.
Schroders is not alone in pre-declaring: in June, fellow UK fund house LGIM announced voting intentions on ESG issues at shareholder meetings for companies including J Sainsbury, Alphabet, Meta, Amazon, Twitter, McDonald’s, JPMorgan Chase and BP.
“Sometimes we declare our vote intention ahead of meetings, to draw the attention of the market, clients and other companies to a particular issue, resolution or outcome. The decision to do so can be undertaken as part of an escalation strategy; where we deem the vote to be particularly contentious; or as part of an engagement programme,” the firm said in a statement.
Asset owners will think twice before pre-declaring, given the risks to long-term relationships, but for managers it can be a more complex issue still due to the need to maintain channels of communications for multiple clients and product lines. It is clearly not a step taken lightly, even in the face of boardroom intransigence. This explainer looks at why and how asset managers pre-declare.
How does pre-declaring work?
Louisa Hughes, Senior Engagement Manager at non-profit responsible investment organisation ShareAction, describes pre-declaring as “an extremely useful tool to illustrate support for a resolution vote and sets the tone for expectations on investors’ voting stance”. It would certainly be appropriate for co-filers of a resolution to pre-declare their vote, as well as other shareholders who want to signal their support and help to generate momentum around a resolution, she adds.
However, investors have many reasons why they might not pre-declare. “They might not have a history of engagement on a topic with the company or don’t fully support all aspects of a resolution.”
Caitlin McSherry, Director of Investment Stewardship at employee-owned investment manager Neuberger Berman, says the firm has been “systematically” announcing its voting intentions in advance of AGMs since 2020.
Through its NB Votes initiative, the firm publishes its vote intentions in advance of select shareholder meetings, with a focus on companies where its clients have “significant economic exposure”. NB Votes addresses a broad range of topics across the firm’s nine key governance and engagement principles enabling NB to share its broad analysis and insights.
“This programme seeks to amplify our voice by pre-announcing a select array of our voting choices,” says McSherry. “As proposals become more complex, layered, nuanced and controversial, particularly around remuneration and director votes, setting out the thinking behind voting decisions is becoming more important for transparency and understanding.”
NB Votes has three main goals: to encourage investee companies to stake steps to improve long-term value for NB’s clients; to improve the transparency of NB’s voting process; and to demonstrate the fundamental, long-term focus of its investment teams, which informs the firm’s vote decisions, says McSherry.
Is pre-declaring becoming more common?
A group of institutional investors, including LGIM, Aviva Investors and Sparinvest pre-declared their support for a climate resolution (against management recommendation) filed at the Credit Suisse AGM earlier this year. The resolution called for the bank to reduce its exposure to fossil fuel assets on a timeline consistent with the 1.5⁰C goal of the Paris Agreement. Other pre-declarers included Border to Coast Pensions Partnership, BVK, Folksam, Grünfin, and Northern LGPS (comprising Greater Manchester Pension Fund, Merseyside Pension Fund and West Yorkshire Pension Fund).
The pre-declarations came after years of “sustained engagement” with the bank. The resolution was originally coordinated by ShareAction and Ethos Foundation with the support of the Swiss Association for Responsible Investments (SVVK-ASIR), backed by 11 institutional investors. In all, a quarter of shareholders backed the resolution.
Pre-declaring is encouraged by the UN-convened Principles for Responsible Investment (PRI). In 2017 it built an online form for signatories to voluntarily communicate how they intended to vote on shareholder proposals at AGMs. This was upgraded in 2021 and integrated into PRI’s Collaboration Platform to make sharing vote declarations simpler and clearer. Signatories can include a rationale with each vote declaration, which PRI says enables them to better communicate their reasoning alongside each voting decision.
The vote declaration tool aims to increase transparency and collaboration, in line with PRI’s Principles two (we will be active owners and incorporate ESG issues into our ownership policies and practices) and six (we will each report on our activities and progress towards implementing the Principles). It enables investors to share their voting intentions with peers; gain insights into how peers are implementing their responsible investment activities through their voting on shareholder resolutions; and enables asset owners to monitor how their investment managers intend to vote on upcoming proposals.
When is it effective?
Although pre-declaring remains a “relatively under-utilised” form of engagement, ShareAction has seen some “really positive results” from it in the context of resolutions it has co-filed, says Hughes. Nest, the UK’s largest workplace pension scheme, came out in support of the health resolution filed at Unilever in February 2022. “This was a key signal of investor support from outside the co-filing coalition in our negotiations. Ultimately, this chorus of investor pressure led to Unilever’s commitment to set an industry-leading benchmark for public reporting around the healthiness of their product sales and the withdrawal of the resolution.”
LGIM describes publicly pre-declaring its vote intention as “an important tool for our engagement activities”. The firm decides to pre-declare its vote intention for a number of reasons, including as part of an escalation strategy, where it considers a vote to be contentious, or as part of a specific engagement programme.
“Voting allows shareholders to appoint the directors that run a company, approve executive pay, agree climate transition strategies, and encourage better reporting on other environmental and social topics,” the firm states. “We believe, therefore, that holding companies and boards to account for their actions through our voting is a fundamental part of being a good steward of our clients’ assets. Transparency over how we have voted on companies helps us to drive change, as well as hold ourselves and the market accountable.”
NB’s McSherry can point to a number of examples where pre-declaration has led to improvements, owing a lot to “clear communication on areas of concern from investors like us, backed by sustained engagement efforts that take account of each company’s specific circumstances and business strategy”.
At General Motors, NB supported the executive compensation plan and the re-election of the chair of the compensation committee. After engaging with the company and writing to the board in 2021 to encourage linking executive compensation more clearly to performance on the firm’s science-based low-carbon transition goals, there have been significant moves, says McSherry. “Links between long-term incentives and electric vehicle roll-out have been tightened, and the factors determining individual executives’ compensation are being more clearly disclosed.”
At Union Pacific, NB supported re-election of the chair of the Corporate Governance and Nominating Committee after it enhanced its workforce reporting in response to a shareholder proposal NB voted on last year—a key measure for improving transparency, inclusion and equity in the firm’s human capital, she adds.
“We recognise that many of the concerns we highlight in the NB Votes cannot be addressed overnight and that continued engagement outside of proxy season is a critical element in our ability to have an impact.”
At Netflix, NB disclosed votes against management recommendations in 2020 and 2021 due to ongoing governance concerns. “After several years of opposing the company, we were pleased to see the board take steps to improve its governance practices this year,” says McSherry.
Will pre-declaration grow in importance?
Hughes says pre-declaration is not something that investors do lightly. “If they have co-filed a resolution, there is an assumption that they would pre-declare their support.” However, for investors that have not filed a resolution, it is likely they will have to show a trail of engagement with the company on a particular issue before they feel comfortable to publicly pre-declare their voting intentions, she says. “This is where having investors engaged through our work and coalitions is particularly helpful, as they often already have that history of engagement. Even then, there may still be internal challenges for investors to get sign off for public pre-declaration.”
McSherry says NB discloses voting choices across a variety of issues and with a balance of votes in support and against management recommendations. “In doing so, we are able to showcase votes where we believe a company is demonstrating best practice on a given matter or has demonstrated meaningful responsiveness to a shareholder concern, while also including votes that highlight areas requiring further improvement.”
One of the most powerful tools investors have at their disposal to hold companies to account is proxy voting, says ShareAction. It believes the potential of proxy voting for environmental and social shareholder proposals is being underleveraged by the world’s largest asset managers.
“Too many asset managers continue to vote against, abstain or withhold votes on these important resolutions,” it says. “How investors vote is important. But how they publicly communicate their voting intentions can also have an impact. That’s why we are urging them to pre-declare their voting intentions on ESG-related resolutions. In doing so they will further highlight the urgency of the challenge among the companies in which they invest.”