State Street Global Advisor’s engagement head has described voting against company directors as “the most effective tool we have” for conducting effective stewardship.
Speaking to Responsible Investor, Ben Colton, the firm’s global head of asset stewardship, said voting down directors at annual general meetings was a much more powerful way to hold corporates to account than supporting non-binding shareholder proposals.
State Street agrees, for example, with the objectives of Say on Climate resolutions – increasingly popular proposals asking companies to give shareholders a vote on the credibility of their climate transition plans – Colton continued. “But rather than using the tool as an advisory vote on a climate transition strategy, I’d rather ask specifically for what we want to see and, if we don’t get it, vote against the directors.
“If you vote against directors, 60 percent support for directors would be much more powerful than 40 percent support for shareholder proposals.”
While Colton said that State Street had steadily been increasing its support for shareholder proposals on ESG issues, he noted that many were too specific.
“We’re not going to be prescriptive and tell an oil and gas company where they should be allocating [capital] in the near term. Rather, we want to understand what their pathway looks like, and then we’ll hold them accountable if they’re not providing disclosures up to our expectations… That’s where we use director votes to hold them accountable”, he continued.
He said that, while State Street was more likely to support non-binding votes and believed in their ability to raise awareness on topics, “the most effective tool that we have in our toolbox is [still] that director vote”.
Colton said that State Street has an escalation policy for ESG issues, because divestment in passive strategies is difficult. For example, it will increase the number of directors it votes against each year on certain issues if they are not resolved. When pushing for gender diversity on boards – one of State Street’s priority issues – it starts by voting against a non-compliant firm’s chair of the nominating and governance committee, escalating to the full committee after three years.
In 2021, the firm supported management in around 85 percent of director-related resolutions.