Canada’s CPP Investments embarks on governance voting blitz

Canadian pension giant CPP Investments voted against more than 500 directors under a new policy on classified boards in 2022 as it expanded the scope of its governance voting campaigns.

The C$523 billion (€389 billion; $383 billion) manager voted against 555 directors at 200 companies with classified boards, where only a subset of directors are up for election each year.

Richard Manley, the firm’s head of sustainable investing, said that classified boards make engagement more difficult.

“If it is a board diversity issue or climate risk issue,” he said, “we may be wanting to vote against the reappointment of a risk committee chair or an audit committee chair. If we get the opportunity in year one to provide feedback that they’re falling short of our expectations but they’re not back on the ballot again until year four, our ability to continue to engage effectively with that individual director is compromised.”

He continued: “As soon as you have a proactive engagement strategy, it is much more effective when we can escalate each year and reiterate the message to the same cohort of directors.”

If the governance structures at a particular firm were preventing CPP from “giving feedback” on a particular director, it opposed the entire slate up for election.

Improving governance standards at firms that have recently come to market was another key focus. CPP voted against 387 directors at 136 newly public companies on governance grounds. These included firms that limit shareholder rights through structures such as dual-class shares, supermajority requirements or classified boards, and were unable to demonstrate clear mechanisms or pathways for phasing them out.

Manley said companies were increasingly recognising that the governance expectations of public markets investors have evolved a long way, and that such governance structures “are probably too large a protection and it’s not actually really needed”.

The manager is also focusing its attention on trying to secure change at newly listed companies rather than at established firms.

“It’s worth remembering that CPP as an institution is actually a lot younger than a lot of the largest public companies in the world,” Manley said. “Our position is that we’re an active owner, not an activist owner.”

While CPP will engage with older firms that have a dual-class share structure on introducing a sunset clause, for instance, it would not immediately start voting against directors in the same way.

“We’re not buying shares in companies to seek to change their governance, but where companies have recently gone public, and this was something that we engaged with management about at the time of the IPO, it is something we do feel it is absolutely appropriate to hold them to account for.”

Manley said that CPP had been able to successfully engage with companies looking to come to market with undesired governance structures over the past few years in order to “effectively refine the governance package”.

CPP also tightened up its requirements on gender diversity. In 2021, it expanded its practices to oppose nominating committee chairs at firms with less than 30 percent female directors in the US, Canada, developed Europe and Australia, and with no directors in the rest of the world. This resulted in votes against chairs at 481 companies.

Numbers have fallen this year, with votes against just 357 firms. CPP has now expanded the 30 percent threshold to New Zealand and South Africa, and said it would look to apply this to more markets, including emerging markets, over the next few years.