F&C support for companies drops sharply in 2010
EUROPE - The level of support for companies by asset manager F&C has dropped considerably over the past year, according to the firm's Responsible Investment Report 2010.
Opposition to management rose to 18% from 10% in 2009, while votes in favour of management dropped from 78% to 72%, reflecting a tougher stance on board composition and effectiveness.
The biggest change occurred in board elections, where votes against management increased by 13%.
F&C saw its support for management decline sharply in specific regions - particularly Japan and Russia, where it took a stern view on the lack of board balance and independence.
However, support for management increased in the US, Australia and Brazil, reflecting improvements in transparency and steps toward better governance.
According to Karina Litvack, head of governance and sustainable investment at F&C, voting is the cornerstone of shareholder engagement.
"If used properly, it can be extremely effective," she said, speaking at the announcement of the report's findings.
"But there needs to be very clear and constructive communication with companies for the tool to work."
F&C tells the respective companies beforehand how it is going to vote. The reason for the vote is also explained in writing afterward for the company to be able to change its direction on a particular issue.
Executive remuneration, particularly in the financial sector, has been the topic of many engagements in 2010.
"It is about ensuring the financial incentives do not induce the wrong kind of decision-making," said Litvack, adding that it was also important for companies to maintain an attractive pay structure.
F&C signalled its strong concerns by opposing pay packages at the vast majority of US, UK and continental European banks, which drove support for pay proposals overall below 70%.
However, while engagement on remuneration is still unfinished business for F&C, it noted that many structural improvements had already been undertaken such as deferrals, clawbacks and more remuneration through shares rather than direct bonuses.
"However," said George Dallas, director corporate governance at F&C, "remuneration is less of a problem at the executive level than at the below-board level. While we cannot vote on this, we can ask for greater disclosure on below-board level pay."
Other engagements took place on the increased recognition of non-financial risks, which have the potential to impact companies' bottom lines, such as climate change, water stress, corruption, human rights abuses and health and safety, particularly in the extractive industries following the explosion of BP's Deepwater Horizon rig and several major accidents involving fatalities and work stoppages at China's Zijin Mining.
Important topics for F&C in 2011 include sustainability and governance on credit quality; property and private equity; the UK Stewardship Code and beyond; China; climate change; health and safety, particularly at deep underground or deep underwater systems; and the natural resources crunch, specifically the security of food.
F&C voted almost 72,000 resolutions at more than 5,700 companies in 63 countries in 2010, a 20% increase on 2009 due to an expansion in client holdings.