24 February, 2023
A quiet revolution in corporate governance is underway. If you own shares via a unit trust or pension, your asset manager makes decisions on your behalf. Some of these decisions – share restructuring, reappointment of auditors – are arcane. Others have more direct implications for your investment, the future of the business and, in some cases, for society and the planet.
Change is afoot, as investment firms turn to tech to provide new ways for asset owners to make decisions and influence voting, rather than leaving it in their hands. Vanguard launched a pilot last year to allow investors in certain funds to express preferences on voting, and Aviva is trialling Tumelo, that lets people see how their pension is invested and express views on ESG issues companies face. And now the big guns have arrived, as BlackRock announced the expansion of its Voting Choice programme to include more options, more funds and make it available to UK investors. In Larry Fink’s words, “choice can and should extend, not just to the strategies in which clients invest, but also to how clients engage in the governance of companies their money is ultimately invested in”.
This trend starts to dispel legitimate concerns about concentration of power in the hands of a few asset managers. And democratising shareholder capitalism makes sense – if you can have a say in how your money is invested, you should. It’s your money, after all.
It also acts as a way to get around another problem. BlackRock in particular has been the target of furious criticism from some US state governors for its outspoken advocacy around ESG issues, and has lost mandates to investment firms deemed by Republicans to be less in thrall to “woke capitalism”. At the same time, new legislation on ESG and finance is changing the context of what firm are allowed to say and do, and much is still in flux. By handing over the voting rights – and responsibilities – to investors themselves, there is an opportunity for asset managers to distance themselves from some of the decisions that are made.
Clearly the best outcome all round is high levels of participation, allowing investors who want to ensure that their money is a force for good to have their voice heard. But as only 67% of us voted in the last general election (straightforward choice, plenty of information, a one-off commitment) it’s not clear how many investors will embrace this brave new world of shareholder participation, or how easy they will find it to make informed decisions.
In our view, the best approach in the long-term would see the investment manager providing a strong signal to their clients about what decisions they think are right, and why, at the same time as it empowers the investment owner to make the final call. Then responsibility and the democratisation of decision can go hand in hand.
By Claire Jost