6 min read 18 Jan 21
Alongside engagement with investee companies, active voting is an integral part of our investment approach. We believe exercising our vote adds value and protects the interests of our clients as shareholders.
Our starting position is to be supportive of the management of companies in which we invest. However, there are occasions when company boards put forward resolutions that we feel are not in the best interests of the company, or where shareholders put forward resolutions that we feel are.
In 2019, M&G voted at 1,788 meetings; at 673 of those, M&G voted against at least one resolution.
One of the most high-profile issues in the UK during 2019, and continuing in 2020, was executives receiving pension contributions at a much higher rate than other employees. In some cases, companies are voluntarily reducing pension contributions, to align within a few percent of the workforce. In other cases, M&G has experienced push back on the request to reduce pension allowances. This is an area which we have actively monitored, and this topic has been discussed as part of the majority of our remuneration engagements. M&G expects remuneration committees to set out a credible action plan to reduce the pension contributions of incumbent directors to the majority of the workforce level by the end of 2022. In 2019, a number of companies acquiesced to shareholders on the issue, but a proportion, including Lloyds Banking Group and Standard Chartered, did not, and consequently we opposed their remuneration resolutions.
We saw climate-related shareholder resolutions at both Royal Dutch Shell and BP. The proposal at Shell from climate change pressure group Follow This required the company to ‘set and publish targets that are aligned with the goal of the Paris Climate Agreement to limit global warming to well below 2°C.’ 2019 was the fourth year this resolution had been requisitioned. Consultation between shareholders and the company subsequently resulted in the resolution being withdrawn, with Follow This stating this was ‘to give Shell time to bring [its] climate ambition into line with the Paris Climate Agreement’.
BP faced the same binding Follow This resolution at its AGM, but it was not withdrawn. M&G discussions on the proposal resulted in our voting differently across funds, as opinions remained divided. A second BP environmental resolution, under the auspices of Climate Action 100+ and promoted by M&G as co-filers, was recommended by the board. This resolution required the board to report to shareholders its strategy for meeting the goals of the Paris Agreement in terms of its capital expenditures and progress against relevant metrics and targets. The resolution was passed.
In the US, where shareholder resolutions are more common, we saw climate-related resolutions proposed at both Chevron and Exxon Mobil; though the latter resolution was blocked by the company with permission of the Securities and Exchange Commission. Seven other shareholder resolutions did appear on the ballot paper at Exxon Mobil’s AGM, of which we supported six, and though none were passed some were well supported.
We supported other US shareholder resolutions across a range of topics including political donations, share capital structure, combined chair and chief executive positions and environmental issues. Of particular note was Microsoft’s AGM, which included two shareholder resolutions. The first requested the company to ‘report to shareholders describing opportunities for the company to encourage the inclusion of non-management employee representation on the board’; while the second concerned gender pay gap. We supported both resolutions as we considered employee consultation to be insufficient and more disclosure should be available on pay. We opposed the appointment of the auditor due to excessive tenure and some of our funds opposed the remuneration resolution in light of increases during the year.
Elsewhere in North America, our concerns over non-executive independence, typically due to long tenure, saw us oppose the re-election of directors across a range of companies, including integrated systems design company Synopsys, banking group US Bancorp and chemical producer Eastman Chemical Company.
At Japanese building materials company Lixil, a corporate governance battle sought boardroom changes, including the return of a former chief executive, and resulted in victory for minority shareholders, including M&G. Such public dissent is rare in Japan and some are hopeful that it marks an awakening of shareholder activism in the country. According to the Nikkei Asian Review, a record 14.8% of enterprises reporting vote results for June 2019 meetings had at least one proposal with more than 20% opposition, including abstentions, continuing an uptrend over the past decade.