The statistic is alarming when one considers that plan sponsors have a fiduciary responsibility to oversee what their investment manager or proxy voting agent is doing on their behalf. “When pension trustees delegate responsibility, that doesn’t mean just handing it over and saying ‘take care of this and that’s it,’ but there’s an obligation to provide instruction on how to vote and to monitor compliance with those instructions,” says Gil Yaron, director of law and policy with SHARE.
And it seems many plan sponsors really give no direction at all when it comes to instructing their proxy voters on how to place their votes. Yaron says that, based on survey results over the past four years, roughly 85% of proxies are voted without direction by pension plans. “Frankly, the voting of proxies was just seen as the basket of tasks that was assigned to investment managers as part of managing the investment portfolio,” he says. In other words, plan sponsors were not paying too much attention to proxy voting and assumed their managers were handling it for them. However, proxy voting is really a distinct aspect of the pension investment practice and requires its own dedicated oversight, Yaron adds.
“Managers may or may not be voting in the best interest of the plan and you’ll never know unless you put in place protocols for managing the delegation,” explains Yaron. One problem that can arise, and is highlighted by the survey, is how a voting agent for a plan sponsor can potentially vote differently on the same issue in two different shareholder meetings. Yaron says this can occur because voting agents will often follow the direction of the corporate board they are voting on. For example, if a particular board is supportive of a given issue in scenario A and a different board is against that issue in scenario B, a plan sponsor, via the agent, may find itself voting two different ways on the same issue.
But even though some managers may be proactive in getting direction from their clients, the current landscape does not really encourage plan sponsors to be more proactive. Yaron says things like the CAP guidelines are not specific enough to raise this issue in the minds of trustees. He adds that only when there is additional publicity surrounding corporate scandals and more evidence of inappropriate proxy voting, can there be an increased awareness of the shareholder’s role in good governance.
One step that could really force more awareness of the proxy voting issue is the review that will take place in 2007 of the Canada Business Corporations Act. Yaron believes shareholders’ voices will be heard at the next review as they seek to champion a governance agenda into business practices legislation. Says Yaron, “There are going to be calls at that time for shareholders to have more direct involvement in those governance issues.”