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Active ownership blog: voting season spotlight

How does voting at annual company meetings work? In this blog we share some examples of how we’re voting on shareholder resolutions.

10/03/2023
blog

Authors

Sustainable Investment Team

Voting is one of the most important ways investors influence how a company is run.

Each year shareholders, including activists, put forward resolutions at company AGMs on anything from climate change to human rights to data privacy. It is the responsibility of asset managers to ensure votes are cast in the best interests of clients.

Andy Howard, Global Head of Sustainable Investment, explains: “We take voting responsibilities very seriously. Every resolution is a specific ask of a specific company which we assess through our own fundamental research. We cannot treat resolutions as a statement of our general stance on an issue. Detail is critical.”

Our Engagement Blueprint sets out our guiding principles around active ownership, including our approach to shareholder resolutions. During the voting season between March and June, be sure to check back for regular updates on how we are voting and why.

10 March 2023: How we will vote on Carlsberg’s human rights reporting

Carlsberg, the Danish brewing company, will hold its AGM on 13 March. Shareholders will be presented with a proposal for the business to publish its human rights-related efforts and risks. The proposal asks the board of directors to report on “the company’s efforts to respect human rights and labour rights in accordance with the United Nations Guiding Principles on Business and Human Rights (UNGPs), and which, if any, human rights-related financial risks the company has identified, and how it seeks to address these.”

Carlsberg is a signatory of the UN Global Compact, the voluntary sustainability initiative based on CEO commitments, and has also stated it is committed to the UNGPs. The company also states that it conducts human rights due diligence, including identifying salient issues in its value chain and working to mitigate potential adverse impacts. The company also says it is committed to continuously assessing issues identified.

After examining this proposal, we have decided to vote Against based on the below analysis:

  1. Is the resolution aligned to our Blueprint? Yes, human rights is one of our priority themes and we ask companies to introduce robust human rights due diligence processes, including integrating the findings and taking appropriate action. We believe that by mitigating human rights risks, businesses will be better protected against the operational, reputational, legal and financial risks resulting from human rights controversies.
  1. Is a resolution the best way to address the issue? No, the company already commits to respecting human rights as defined by the UNGPs and it will be required to report on its sustainability due diligence under the European Union’s Corporate Sustainability Reporting Directive (CSRD), which entered into force this year. As part of this due diligence, the company will need to disclose its processes to identify, prevent, mitigate, and account for ways it addresses actual and potential impacts on people. 
  1. Does the resolution add value to what the company is already doing? No, we have engaged the company and in this case it is already undertaking double materiality assessments to identify, assess and prioritise human rights risks, and has committed to doing so on a yearly basis. It will publish the latest results in 2025 for 2024 reporting. Given the new requirements posed by CSRD, we do not believe that the resolution is additive to what the company is already doing and what it is required to do by law.
  1. Does the resolution have the potential to cause unintended damaging consequences? Yes, while we support the resolution in spirit, in this case we believe it duplicates the newly-introduced regulatory requirements, which are designed to harmonise information and reduce reporting costs over the medium to long term. Asking the company to produce an additional report may pose an unmerited administrative burden, without necessarily delivering enhanced human rights outcomes.

 

7 March 2023: How we will vote on Apple’s gender pay gap reporting

Apple will hold its AGM on Friday (10 March). There are five shareholder proposals on the ballot, one of which relates to gender and racial pay gaps. The proposal asks the company to “report on median pay gaps across race and gender, including associated policy, reputational, competitive, and operational risks, and risks related to recruiting and retaining diverse talent.”

Apple currently reports statistically-adjusted pay gaps, for example between men and women performing similar roles or with similar education levels. Unadjusted, median pay gap reporting does not take these factors into account, and the proponent argues this measure better captures the actual pay gaps experienced by women and minorities.

After examining this proposal, we have decided to vote For based on the below analysis:

  1. Is the resolution aligned to our Blueprint? Yes, Diversity and Inclusion is one of our priority themes and within this we ask companies to disclose gender and ethnicity pay gap information. Diversity across multiple dimensions brings a valuable range of outlooks and opinions, and when paired with an inclusive culture, can lead to higher-quality work, better decision-making and problem-solving, and greater team satisfaction.
  2. Is a resolution the best way to address the issue? Yes, we have engaged the company on this issue and believe voting in support of the resolution can help support our engagement on this topic in this case.
  3. Does the resolution add value to what the company is already doing? Yes, improved transparency on gender and ethnic pay gaps would allow us to better understand how the company is progressing against its diversity goals, would provide the investors with more comparable data and greater insights into how the company is positioning itself to realise the benefits of a diverse workforce.
  4. Does the resolution have the potential to cause unintended damaging consequences? No, given the company already discloses pay gap metrics, we do not believe this would cause any unintended harm.

6 March 2023: How we will vote on Applied Materials’ threshold to call a special meeting

Applied Materials, a US-based semiconductor and display equipment company, will hold its AGM on Thursday (9 March). Shareholders will be allowed to vote on a shareholder resolution which asks the board to “take the steps necessary to amend the appropriate company governing documents to give the owners of a combined 10% of our outstanding common stock the power to call a special shareholder meeting.”

The company sets the threshold to call a special meeting at 20%. The proponent argues that reducing this threshold to 10% would enable shareholders to more easily take action outside of the AGM, and that the company’s current form of written consent poses too many barriers for shareholders.

After examining this proposal, we have decided to vote For based on the below analysis:

  1. Is the resolution aligned to our Blueprint? Yes, Relationship with Shareholders falls under the Governance priority theme in our Blueprint, and within this we ask companies to maintain an open dialogue year round, and not only related to the AGM. We believe that it is essential that strong governance policies and practices are in place to ensure that businesses act in the best interest of shareholders and other key stakeholders, in order to drive long-term sustainable value creation.
  2. Is a resolution the best way to address the issue? Yes, we believe voting in support of this resolution is the best way to raise the issue with management.
  3. Does the resolution add value to what the company is already doing? Yes, we believe a reduced threshold of 10% of outstanding common stock is preferrable to the company’s existing form of written consent, and helps to keep management accountable to shareholders.
  4. Does the resolution have the potential to cause unintended damaging consequences? No, we believe shareholder dialogue with the company on an ongoing basis is an important element of shareholder rights, and the threshold of 10% is reasonable and does not pose a risk to shareholders abusing the right to disrupt day-to-day management.

Our approach to voting at company meetings

The environmental and social forces reshaping societies, and their implications for businesses, are core to Schroders’ approach to active ownership. Throughout the year, we work with companies to understand if and how they are preparing for the long-term challenges they face, and encourage them to take action where change may be required in order for these companies to strengthen their long-term prospects and generate higher quality returns for shareholders.

Another way we use our voice as shareholders is through voting at companies’ Annual General Meetings (AGMs). This helps us to effect change and is one of the ways we can escalate our concerns where engagement has not been successful.

ESG-related resolutions have increased in both volume and breadth in recent years, and we expect this trend to continue this year. Assessing these resolutions requires a detailed understanding of the company, sector and potential implications adopting a resolution would have. Our 2023 Engagement Blueprint summarises our views on issues we regard as having the potential to be particularly material to investment risk. We seek to align our approach to voting with our wider active ownership priorities. We will oppose the board's recommendations and support shareholder resolutions if we believe that doing so is, taking into account relevant factors, in the best interests of shareholders and our clients.

Within the Blueprint we outline our process for evaluating shareholder resolutions based on four key questions:

  1. Is the resolution aligned to our Blueprint? This considers the resolution’s fit with the expectations we outline within the six thematic priorities covered in the Blueprint.
  2. Is a resolution the best way to address the issue? We do not intend to micro-manage companies, but rather to provide oversight and guidance through dialogue, engagement and voting. Moreover, we consider if other relevant stakeholders are better placed to address the issue, for example governments through regulation.
  3. Does the resolution add value to what the company is already doing? This could include improving transparency to help us better understand how companies identify and manage risks, providing reassurance that policies and practices are effectively implemented, strengthening management systems to resolve and prevent controversies, and encouraging companies to move towards ESG best practice.
  4. Does the resolution have the potential to cause unintended, damaging consequences? This considers if the proposal, if implemented, could have the potential to cause unintended consequences of a significant level to the company’s stakeholders, taking into consideration a range of contextual factors, including cost, sector, geography, and economic climate.

Issued in the Channel Islands by Cazenove Capital which is part of the Schroders Group and is a trading name of Schroders (C.I.) Limited, licensed and regulated by the Guernsey Financial Services Commission for banking and investment business; and regulated by the Jersey Financial Services Commission. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.

 

Authors

Sustainable Investment Team

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Cazenove Capital is a trading name of Schroders (C.I.) Ltd which is licensed under the Banking Supervision (Bailiwick of Guernsey) Law 2020 and the Protection of Investors (Bailiwick of Guernsey) Law 2020, as amended in the conduct of banking and investment business. Registered address at Regency Court, Glategny Esplanade, St. Peter Port, Guernsey GY1 3UF, (No.24546) . Schroders (C.I.) Limited, Jersey Branch is regulated by the Jersey Financial Services Commission in the conduct of investment business. Registered address at IFC1, Esplanade, St Helier, Jersey, JE2 3BX, (No.31076).

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