Large asset managers are in a position to vote millions of shares; yet, there’s often much confusion around how these voting decisions are made. How are large asset managers influenced by proxy advisors? Do the portfolio managers or governance professionals make final voting decisions? How do large asset managers want to engage with board members?
In this episode, guest host Doug Chia, Executive Director of The Conference Board’s Governance Center, welcomes Eileen Cohen, former Managing Director with JP Morgan Asset Management, to understand the inner-workings of voting decisions at large asset managers.
The observation that I’ve made over the years is that the trillions of dollars invested by the large [asset] firms are voted independently based on their own written policies and procedures…However…in contested situations–M&A or proxy fights–I sense that proxy advisory firms do have influence over the final decisions.
Chia outlines several popular criticisms of today’s voting process: (1) Large portfolio managers are blindly following proxy advisory recommendations or even outsourcing their voting. (2) The proxy-voting side and investment-decision side don’t talk to each other. Cohen explains how these perceptions compare to her experience.
“Over the years, many firms have begun to incorporate the views of their portfolio managers in engagement meetings and in proxy votes themselves,” said Cohen, pointing out that the structure across firms still varies widely. “…but I think we’re getting closer [to] including the right participants into the dialogue, which also includes the corporate side. We have been seeing more and more IR participating with the corporate secretary or general counsel in governance-related dialogue. I see more and more of that, and I think that is a good trend.”
She also gives advice to today’s board members who have been tasked to engage with their largest investors. What should they be prepared to discuss? What are the most common mistakes she’s seen?