New solutions competing to meet growing demand to exercise voting rights with increasingly customised options.
Moves to align better investors’ wishes with votes cast at AGMs by asset managers are gathering pace, with technology driving transparency and choice.
In one development, International Shareholder Services (ISS) has launched its ‘Vote Preference’, a system “enabling asset managers to offer voting choices directly to their underlying clients”.
Elsewhere, Proxymity, an investor communications platform, said: “We are trying to make it as easy as possible for people to vote their shares”, having announced a deal with BlackRock earlier this month.
And Cambridge University offshoot Tumelo is making waves with its software that allows both institutional and retail clients to ensure their voting intentions are known to investment managers.
Lorraine Kelly, Head of Global Investment Stewardship Solutions at ISS, explained how Vote Preference works. “We have a policy-based approach. First, we establish what the investment manager in question wants, in policy terms.
Policy choices
“They can choose from a menu or the policy could be customised. The next step is to discover the preference of the underlying institutional clients. So ISS is providing a service to investment managers, who then decide which end-clients to apply each policy to.”
She added: “Investment managers often make this decision in consultation with us.”
ISS policy choices including Benchmark, Sustainability, ‘Taft Hartley’, SRI, Public Fund, Board Aligned, Faith-Based. Vote Preference also allows asset managers to easily automate the display and vote execution of their underlying clients’ respective share percentages and provides a full audit trail of communications and vote history, ensuring accurate and timely record-keeping and reporting.
For Proxymity’s Co-founder and Chief Operating Officer Jonathan Smalley, the aim is to remove obstacles to voting by shareholders. “It has long been expensive to use that mechanism, either because of the documentation needed or the requirement for someone to attend physically.
“The bills rack up for you to exercise a fundamental right of ownership. It is the ways in which shares are held and the network of intermediaries that make things hard.”
In the firm’s new deal with BlackRock, the partners will develop a solution platform to offer pass-through technology to enable investors to exercise choice in how their portion of eligible shareholder votes are cast for the upcoming 2023 proxy voting season.
“Leaky, rusty pipes”
According to Tumelo, demand for its services stems from the fact that “investors are actively choosing products that give them a say on issues that matter to them”. By allowing clients to vote on upcoming AGM proposals, fund managers “avoid having to take a controversial stance on issues”, while representing their best interests.
Recent initiatives include a partnership with Legal & General to develop a new digital service allowing trustees to identify key ESG issues for their members.
This week, Tumelo announced has teamed up with proxy advisors Glass Lewis and Pensions & Investment Research Consultants, as well as shareholder advocacy group As You Sow, to allow investors to choose voting policies to match their values and priorities. It said that “by bringing this level of information that is typically reserved for fund managers further down the voting chain”, Tumelo it is helping to democratise voting.
Kelly acknowledged the range of offerings in the space, but said ISS was differentiated by offering both the policy choice and the technology.
“Until now,” she added, “the proxy space has been pretty archaic in terms of its ‘plumbing’.”
Smalley used the same analogy – “we have seen pressure on a fairly antiquated eco-system, with leaky, rusty pipes” – and said much of the demand from investors for greater engagement with proxy votes and transparency as to how they are cast had originated in the rise of ESG investing.
“There is a number of people, which is getting smaller, whose interest is solely returns. More people want to invest beyond returns and feel good about their investments.”
Institutional and retail
In the summer, BlackRock announced that it was further expanding its programme to offer eligible clients – including public and private pension plans, insurance companies, endowments, foundations and sovereign wealth funds – the opportunity to participate in proxy voting decisions, where legally and operationally viable.
“The expansion of the programme reflects BlackRock’s commitment to democratise participation in the financial markets by providing clients the industry’s broadest range of choice to help them meet their investment objectives with the freedom to choose how their votes are cast,” it said.
While ISS’s Vote Preference is aimed at institutional clients only, BlackRock said its ultimate ambition was to extend voting choice to retail investors. Smalley said: “We started with institutional investors, but to get to 100% we needed to include retail shareholders. Not that all of them want to vote for themselves, but that’s the person whose money it is.”
In parallel with these product developments, regulators and governments are also looking to remove structural barriers to voting by asset owners. In the UK, a vote reporting group recently met under the auspices of the Financial Conduct Authority (FCA) to examine the obstacles to information flows from managers to asset owners related to exercising voting rights.
