Support for shareholder rights in the US
Europe’s four largest investors have joined forces for the first time to throw their weight behind an initiative for US shareholder rights.
ABP Investments, Hermes Investment Management, Norges Bank Investment Management - the manager of Norway’s Government Pension Fund - and PGGM have made a submission to the US Securities and Exchange Commission (SEC) regarding a consideration of amendments to its Rule 14a-8 regarding proxy access.
This was prompted by an SEC announcement last year that it would consider amendments.
The initiative pushes for a right of shareholders to introduce proposals to amend company by-laws that, if adopted, would require those companies to place the names of director candidates nominated by shareholders on the management proxy.
In a joint letter to the SEC, the four pension funds stated that with more than $100bn (€73.5bn) of their collective $765bn under management invested in US securities markets, they “rely on the integrity of the markets in making investment decisions”, which is why they are “‘deeply concerned about how shareholders’ rights can be best protected”.
“The right to nominate directors in the US is important for two reasons: one is that it is cheaper and less destructive than the proxy contests that currently take place in the US,” says Colin Melvin, director corporate governance and responsible investment and CEO of equity ownership services at Hermes. “The second, and perhaps more important, reason is that it increases the accountability of directors and the board as a whole to shareholders. And we think that leads to an improvement in the value of the companies.”
He adds that Hermes and the other co-signatories would like to foster a relationship based on accountability rather than increased regulation, which is why proxy access, the ability to put things on the agenda, is important.
The investment managers advocate a more principles-based and flexible regime through their support for proxy access achieved through by-law amendments rather than a regime whereby the SEC applies one rule to all issuers. They say it can promote a constructive dialogue between companies and their shareholders
In their letter they also noted that the right to nominate directors on management’s proxy card enjoyed by shareholders in other jurisdictions around the world has led to increased stability in the director election process. And they stated that in those countries, the right is only rarely exercised.
Melvin says: “A change in the US would be good. There has not been any disruption of the director election process in the UK or Europe because of this right. As is the case with other rights enjoyed by shareholders, if they are granted the rights they tend not to use them. It is more of a fall-back position.”
He continues: “We are active on behalf of our clients in debates around the world on matters that relate to shareholder rights. It is important to press for this right in the US because we have it elsewhere. And of course it would benefit our clients, our current and future pensioners, because we believe it would raise the value of their funds.”
But it is the middle of the proxy season and attention in the US is also diverted to an advisory vote on directors’ pay so the issue is currently on hold. However, Hermes’ sources indicate that proxy access is likely to be re-examined in June.
Elsewhere, the UK’s independent regulator, the Financial Reporting Council (FRC), has initiated an assessment of the progress made in implementing the Combined Code on Corporate Governance.