Janice Turner is co-chair of the Association of Member Nominated Trustees (AMNT)
Pension scheme trustees who want their ESG policies to make some impact could not have had a better start to 2021. An enlightened alliance of four companies – AMX, DWS, Minerva Analytics and Northern Trust – has announced a new fund that gives investors a choice of voting policies. They can choose AMNT’s Red Line voting policies, those of the PLSA or DWS, or a custom policy.
The announcement was hailed in the pensions press as a major disruptor of the market, which is precisely what it is likely to do.
Pension trustees have been trying for many years to adopt a voting policy, but the fund managers of the pooled funds in which so many pension schemes invest have refused to accept these policies even on a “comply-or-explain” basis. This means that those pension schemes, which usually invest with several fund managers, are left with the votes associated with their investments being used in potentially contradictory ways and governed by as many voting policies as there are fund managers.
The other result of this refusal to accept client voting policies has been that some investment consultants have concluded that there is no point in their clients adopting a voting policy because they know that nobody is going to respect it. The announcement of this new fund that gives investors a choice of voting policy is a game changer. Until now, fund managers have been able to decline to respect their clients’ voting policies, safe in the knowledge that there is very little alternative. Now there will be a fund that puts the client’s wishes first.
This is a huge progress. It signals an end to what AMNT has considered and untenable situation in which fund managers refuse to accept their clients’ policies and then implement their own policies that fall way short of what many would consider to be an appropriate policy for today’s world.
Take, for example, race equality and the issue of the under-representation of ethnic minorities on company boards and in the workforce. This is an extremely important issue for corporate success and for society. McKinsey has been published evidence concluding that the outperformance of ethnically diverse companies has not only grown – in 2019 top-quartile companies outperformed those in the fourth one by 36% in profitability, up from 33% in 2017 – but the likelihood of outperformance continues to be even higher for diversity in ethnicity than it is for gender.
Baroness Ruby McGregor-Smith’s 2017 independent review, commissioned by the business secretary, found that the UK economy would be roughly £24bn a year bigger if employees from BAME back- grounds progressed at work at the same pace as their white colleagues. But a year ago, in February 2020, the Financial Reporting Council stated that more than half of FTSE 250 companies fail to mention ethnicity in their board diversity policy, and most of the FTSE 350 do not set measurable ethnicity targets. A new Parker Review report issued the same day revealed that more than a third of FTSE 100 companies have no ethnic minorities on their boards.
AMNT’s Red Lines include policies that address this. It sets out a vote against the re-election of the chair of the nomination committee of companies that have all-white boards and senior management and no plans to address the problem. It also advocates a similar vote when companies fail to carry out and publish their equality monitoring data – a policy endorsed by the McGregor Smith Review.
But despite AMNT’s policy being adopted by trustees as long ago as 2016, our survey of fund manager policies on this in 2018 showed that not only had they refused to accept their clients’ policies but most in our survey had also failed to adopt any equivalent policy themselves.
When the Black Lives Matter movement erupted last year, many fund managers were caught short. Some scrambled to catch up with AMNT’s policy but others appear to be asleep at the wheel. AMNT has carried out a second study of fund managers’ voting policies and we are looking into whether the industry had progressed since our last report, and whether they responded meaningfully to Black Lives Matter.
For trustees, the emerging market response to our demands for our voting policies to be respected, coupled with the government’s new taskforce on the matter, marks a new departure. It means we are reaching a point where adopting voting policies that are more progressive than those of most fund managers, on ethnicity on boards and a range of other policies such as climate change, will start to take effect on corporate Britain.
That day cannot come soon enough.
