Florida pension fund unveils study showing impact of proxy voting on its portfolio

State Board of Administration releases “first of its kind” empirical analysis.

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Florida’s $182.6bn (€165.4bn) State Board of Administration (SBA) has released what is says is the first ever study of the effect proxy voting can have on an investor’s portfolio – both positive and negative.

For the 32-page study called Valuing the Vote, the SBA looked at what happened when it voted for or against board candidates in 107 contests between January 1, 2006 and December 31, 2014. During the contests, the pension fund voted for one or more dissident candidates 65% of the time.

The findings: When the SBA voted for one or more dissidents and they won seats, the company’s share performance over the subsequent one-, three- and five-year periods was a respective 12%, 21% and 26% increase. This voting stance also translated to an overall portfolio gain of $51m for the five years subsequent to the contest. The SBA realised an even greater portfolio gain, namely $137m, when it backed the management candidates in the 107 contests who went on to take all board seats.

But when the SBA backed the dissidents but management candidates won the board seats in the contest, this depressed the company’s share price. In the one, three and five years thereafter, the share lost 14%, 16% and 15% respectively.This translated into a loss for the portfolio totalling $259m.

In sum, the SBA said its equity value linked to proxy contest holdings increased by $572m – or $5.3m per vote – in the five years after a contest was announced during the study’s time frame. The underlying companies in its portfolio had a market capitalisation of at least $100m.

However, the pension fund also said: “The results of this study do not necessarily show causation, merely correlation among the SBA’s voting decision and subsequent positive stock performance.” The SBA supports board candidates about 80% of the time.

According to the SBA, the reasons for why it would vote against board candidates included poor attendance, lack of independence or engagement and their being “overboarded” – that is a director who serves on three other company boards or more.

The study was compiled by Michael McCauley, the SBA’s Senior Governance Officer, along with three members of his team. McCauley also serves as Chairman of the Council of Institutional Investors, an organisation that represents investors with $3trn in assets.