Over the past few months several leading investors have released stewardship reports detailing their engagement efforts with portfolio companies.
The reports published by BlackRock, Vanguard, State Street Global Advisors (SSGA) and the California Public Employees’ Retirement System (CalPERS) are a must read for insights into how the largest investors interact with portfolio companies and their views on a variety of governance issues, including executive pay. The detail of these reports and underlying activities by these investors is a testimony to the teams and resources they have assembled in recent years to responsibly engage with portfolio companies and vote their shares.
The wide use of the environmental, social and governance (ESG) label is also notable. This broader term includes traditional topics associated with “governance” or “corporate governance,” engagement activities and other topics such as diversity.
A review of these stewardship reports validates the commitment to broader issues by these, and likely other, investors. We summarize highlights from the reports (with links) to augment the discussion of human capital topics, particularly diversity and gender pay, and traditional executive compensation issues:
Investor | Report Highlights |
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BlackRock Investment Stewardship Report: Americas, Q2 2018 |
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CalPERS Global Equity Corporate Governance Program Update, September, 2018 |
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SSGA Stewardship 2017, July 2018 |
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Vanguard 2018 Investment Stewardship Annual Report |
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A look ahead at what’s to come
These reports directly or indirectly discuss a variety of topics that will be of future importance. For instance, with respect to diversity, more than one reference was made to the idea that diversity extends well beyond gender, while also recognizing the recent focus on board diversity, and specifically, the number of female directors on boards at portfolio companies. Going forward SSGA expects to seek more disclosure of gender diversity at all levels of management and will seek to understand broader company activities during the engagement process. CalPERS intends to seek employment data for the broader workforce to assess the diversity of the company’s employees and possibly the leadership pipeline.
The topic of risk was also prevalent and from a variety of perspectives including how these investors engaged with portfolio companies on issues such as cybersecurity, firearms, activism, company strategy, the opioid crisis, climate and sexual harassment. In these cases investors generally note they seek to understand how portfolio companies promote a culture of risk oversight, including what reporting the board receives and how the board oversees risk. This understanding of a portfolio company’s risk appetite and culture is important given investors’ long-term approach to investment and the costs borne by shareholders—reputational, monetary if fines are imposed, lower market value or other penalties—when risk is not carefully evaluated.
Overall the reports offer a transparent look at what interests these large investors, which bears watching because, by virtue of their size, they are likely to own shares in almost every U.S. public company. The content of these reports is an important companion to the published voting policies and vote records of these investors. They are also a timely resource to inform companies as they prepare to engage more broadly ahead of the 2019 proxy season.