Directors on US boards are being punished by big investors for failings ranging from excessive executive pay to poor independent oversight, with shareholder rebellions on re-elections up more than a fifth this year.
There were 1,025 shareholder revolts on director re-elections in 2019 across the Russell 3000, up from 835 in 2018, according to Proxy Insight. The data provider classes a revolt as anything with 20 per cent or more opposition.
Crumbling support for director re-elections came as asset managers and big investors, including UBS Asset Management and Calpers, took a tougher line.
MN, an administrator and asset manager for Dutch pension funds, and Allianz Global Investors, the €557bn asset manager, were among those which took the toughest stance on director re-elections in the US, according to Proxy Insight. MN voted for director re-elections just 59.5 per cent of the time, while AllianzGI backed them 71.4 per cent of the time.
Karlijn van Lierop, MN’s director for responsible investments, said it typically votes against directors when there is a lack of independent oversight on a board, when directors have too many jobs or remuneration systems have perverse incentives.
“Our commitment as a shareholder requires a board composition that is sufficiently diverse in terms of background and expertise, has an independent oversight, a solid corporate governance and chairmanship, and focused directors on the company’s long-term strategy,” she added.
Netflix, the pay TV company, CH Robinson Worldwide, the logistics company, and Universal Health Services, the medical care business, were among the companies where directors were hit with big revolts.
More than two-thirds of investors either voted against or abstained on the election of Ann Mather at Netflix, according to Proxy Insight, while several other directors at the company were also hit with shareholder rebellions.
Eugenia Unanyants-Jackson, director of environmental, social and governance research at AllianzGI, said that when it comes to boards, the asset manager is looking for a good level of independence and diversity, and that directors do their jobs well and have sufficient time to dedicate to the work.
“It is not that we are singling out a particular market. We are setting a global policy and the minimum global standard we expect when it comes to governance,” she said.
She added that in the US, it was common for the asset manager to vote against directors because they had served on the board for a long time, raising questions about their independence. She also said there were concerns about performance-related pay for non-executive directors.
“We are not proud of voting against. We find it dreadful. We would like to support more. But we can only do that where it is in the best interest of our clients,” she said.
Christopher Greenwald, head of sustainable investment research and stewardship at UBS Asset Management, said its voting policy was evolving.
“Over the past year and a half, we have been deepening our engagement with companies on a range of topics, holding them to the highest standards of corporate governance, which in turn leads to better decisions at board level, including in regards to environmental and social matters,” he said.
In the 12 months ended June, UBS backed directors 79.8 per cent of the time, down from 91.8 per cent the year earlier, according to Proxy Insight.
Companies’ corporate governance policies need to be aligned with global best practice, Mr Greenwald said.