Board roomOleg Prikhodko
Investment managers are increasingly willing to vote against directors on boards of public companies if they dislike their performance, or want to protest against the firm's governance practices.
A review of proxy voting by the Vancouver-based Shareholder Association for Research and Education found growing evidence of activism among big investors, reporting that they appear more likely to vote against directors and more willing to support shareholder proxy resolutions.
For the first time in 10 years of monitoring voting records, SHARE found that investors "withheld" a majority of votes for all directors at a major company - the board of auto parts maker Linamar
Shareholders voted almost 54 per cent to withhold their votes for Linamar's board, which has three independents out of six directors.
"This is the first year where we've actually seen majority withholds, and that's a sea change," Laura O'Neill, director of law and policy at SHARE, said in an interview Tuesday.
Shareholders in Canada do not vote "no" for director nominees on boards, but instead are given the option to vote "for" directors or else "withhold" their votes. Many companies have responded to investor pressure and now allow voting for each director on the board individually, but some companies still only allow shareholders to vote for the entire board as a slate.
Ms. O'Neill said she believes the strong withhold vote at Linamar was a protest by shareholders who were upset that the company had only slate voting. Linamar has since announced it will change its voting practice for 2011 and will allow individual director voting.
Other companies also saw a large minority of withhold votes for at least one director last year, SHARE reported, including WestJet Airlines Ltd., Silver Standard Resources Inc. and Nexen Inc.
The SHARE review also found that 42 per cent of the investment managers studied disclosed their proxy voting records in 2010, an increase from 31 per cent in 2009 and only 11 per cent in 2005.
The review looked at 36 investment firms that manage assets on behalf of pension fund clients. While mutual funds in Canada are now required to disclose their voting records, other types of investment managers do not face mandatory reporting rules.
Although growing investor pressure for disclosure has spurred more firms to report voluntarily, Ms. O'Neill said it remains disappointing that a majority of investment firms that "look after other peoples' money" still do not reveal their voting records.
"It's a game of inches here," she said.
The review also found a growing number of investment managers report they have discretion to vote the shares owned by their pension fund clients. SHARE said 79 per cent of participating firms reported that most of their clients - at least 80 per cent of them - let the money manager vote their shares without consultation or guidance. That's an increase from 71 per cent in 2009 and 63 per cent in 2008.
While SHARE strongly advocates for pension funds to take a direct interest in voting their shares, it said the trend may not be as disturbing as it seems because most of the increase can be attributed to a small group of pension fund clients.
Janet McFarland