Moneyworks recommends fund managers to you. You then entrust your money to those fund managers to exercise their votes and use what power they have to ensure that the company they are investing in is successful (both financially and ethically - if that is a feature of the fund).
This article is an overview of the issues and over time we will provide more information.
Gone are the days where a fund manager can turn up to a shareholders meeting to cast their vote in person. Fund Managers tend to own a minimum 20 companies in a fund - and this could be up to tens of thousands of companies for large index or passive fund managers. Each meeting is likely to have a number of votes, that a fund manager needs to cast their vote on.
While a number of these votes are often considered to be 'routine' votes (voting for the board and remuneration), sometimes these can be contentious, and when activist investors get involved, things can become heated (see article below).
To enable fund managers to exercise their votes, an industry of 'proxy voting' organisations has developed since the mid 1980's. It is estimated that 97% of the proxy votes are made through the two leading US based firms (ISS - Institutional Shareholder Services, majority owned by Deutsche Bank, and Glass Lewis). While ISS is responsible for around 61% of the votes cast, Glass Lewis has around 30%. There are a number of other proxy voting organisations that are more niche, including Ownership Matters, an Australian based company, focussing on Australian companies.
Fund Managers use their providers technology platforms to cast their vote, and the providers make recommendations to their clients about how they should vote. This means that the Proxy Voting companies have immense power over what happens with votes, particularly if a Fund Manager isn't analysing and reviewing and making a personal decision on how they will vote (ie if they take their proxy voting companies recommendations.)
To illustrate the importance of Moneyworks understanding how our Fund Managers vote and who their Proxy Voting suppliers are, here are few examples. In February 2022, there was vote on Tim Cook (Apple CEO)'s remuneration package of $99m (1,400 times the salary of the average Apple worker). ISS recommended that shareholders reject the pay package, whereas Glass Lewis was fine with the package.
Glass Lewis has stated that it will use the shareholder proxy votes to recommend votes against boards that aren't adequately diverse. ISS tends to recommend votes against founder led companies.
These are just some publicly available examples of how these organisations can influence the world.
Consequently, it is important that Moneyworks understands a. Who the fund managers use for their proxy voting services, and b. How they go about placing those proxy votes.
We have begun discussing these processes with our fund managers and have had a range of responses, from fund managers who are happy to follow the proxy voting recommendations (in general), checking in to assess any controversial issues, to fund managers who more or less ignore the recommendations from the proxy voting companies, and analyse each vote based on the fund objectives and the situation at the time. The more actively engaged fund managers (more on that in future months), reach out to the companies and discuss the issues and advise if they are going to vote against the company.
Moneyworks will be undertaking an active engagement project next year with each fund manager to fully understand how the fund managers interact with and exercise their proxy votes to enable us to understand how they are representing you.
As an aside, we have discovered that there are some companies where an investor cannot exercise their votes because of the legislation in that country (eg Nestle, based in Switzerland, an Australian based fund manager cannot exercise their proxy votes).