Engagement or voting? Asset manager advocates alternatives

20 May 2020

Elizabeth Pfeuti

EU regulation

Direct engagement with companies produces better results than shareholder resolutions at AGMs, an asset manager has argued.

US investment house T Rowe Price, which runs approximately $1trn, stated in its annual ESG report that it preferred to engage one-to-one with companies to encourage positive changes rather than focus on shareholder campaigns at annual meetings.

The controversial viewpoint reflected shortcomings in many resolutions put to company boards by individual shareholders or groups of investors, the asset manager said.

It claimed that shareholder resolutions were “nearly always opposed by the company’s management and typically find little support”.

For example, T Rowe Price argued that a “minority” of ESG-related proposals put forward by shareholders were “overly prescriptive”. These could relate to enacting particular policies, cutting specific business lines or changing executive compensation.

On environmental disclosures, the investment group said in many cases companies recognised their shortcomings and were working to improve transparency, so did not need external investors to lobby for change.

It also criticised some “poorly targeted disclosure requests” for placing significant reporting demands on smaller companies with limited resources.

“In our view, the board is better positioned than shareholders to make decisions about the operations of the company,” the asset manager said.

“Our recourse, if we disagree with the board’s decisions, is to oppose the election of directors, engage with the company, or use our prerogative as an active owner to sell or underweight the position.”

The size of its asset base gave it “clout” when engaging with investee companies, the investment group said.

T Rowe Price did not have a firm-wide voting policy, it said, instead leaving AGM decisions up to individual portfolio managers.

“Our experience after many years of assessing ESG issues as part of our investment process is that direct, one-on-one engagement with companies produces better outcomes than shareholder resolutions,” T Rowe Price said.

At the same time, however, the company’s head of corporate governance voiced concern about a “weakening of important shareholder rights and investor protections” in several markets around the world.

Donna Anderson wrote in her introductory comments for the ESG report that T Rowe Price had been trying “to persuade regulators that stronger disclosure requirements and basic investor protections are essential if we are to maintain the fair, liquid, and resilient capital markets upon which investors depend”.

As the global economy recovers from the COVID-19 pandemic, Anderson said her company would focus on advocating for governance-related issues including compensation, operational resilience, and the effectiveness of virtual shareholder meetings.

During 2019 the asset manager held more than 11,000 meetings with the management of “existing and prospective investments”. Of this, 656 were classified as ESG-specific meetings.

T Rowe Price voted on more than 62,000 management proposals at company shareholder meetings, voting with management 88% of the time, according to its ESG report.

Of the 1,439 shareholder proposals it covered last year, the asset manager supported 554, or 38.5%. It abstained in just under 4% of cases.

It opposed 121 out of 143 shareholder proposals relating to social issues, and 61 of 78 environmental proposals. It supported just nine environmental votes and abstained from eight.

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