Norges Bank and RBC back successful gender balance resolution at Constellation Software

The proposal by SHARE Canada tests whether “voting and words” on ESG align, as shareholders remain reluctant to disclose their vote

A shareholder resolution on gender diversity at the board of Toronto-listed firm Constellation Software, filed by the Shareholder Association for Research & Education (SHARE) on behalf of The Fonds de solidarité FTQ, has achieved an unprecedented 49.16% level of support, although some large institutional investors have declined to disclose their voting.
The Quebecois funds and SHARE asked Constellation to publish a diversity policy and a report outlining progress and plans by December 2018.
They filed a similar resolution in 2017 at the then all-male board firm, which was supported by 42% of shareholders’ votes.
It prompted Constellation to include a mandate within a board committee to “identify highly-qualified women” for consideration in the event of a vacancy.
Soon after the funds and SHARE filed this year’s resolution, Constellation appointed the first woman, Lori O’Neill, a highly-qualified director, to an extended board which grew from 8 to 10 members.
In its management information circular ahead of the AGM, Constellation recommended to vote against the resolution adducing that the board “does not believe in quotas or strict rules” as criteria to identify the best candidates.
Constellation also argued that it has been one of the best stocks in the TSX 60 over the last decade “despite the Company not having had a very diverse Board”.
It also referred to the newly-appointed female director and the existing board committee’s recruiting mandate as “steps towards achieving greater diversity”.
Delaney Greig, Engagement Analyst at SHARE, told RI that these are “cosmetic changes” and “tokenism” measures which don’t solve the issues completely.
Greig said the vote result has been a surprise as they were concerned that the appointment of O’Neill could have appeased shareholders gender demands and drop the level of support from the 2017’s mark of 42%.
Asked if fellow shareholders backed the resolution, Greig said that SHARE raised the issue with Leith Wheeler and RBC Global Asset Management, although they did not confirm their vote. A spokesperson for RBC told RI that their vote was in favour of the resolution; and Leith Wheeler had not replied at the time of publication.
Greig assumed that there should be large investors among those who voted for the resolution.
“Large shareholders have spoken out about gender and ESG issues in public”, she said, adding that it would be interesting to know “whether their voting goes the same as their words”.
Although the UK Financial Reporting Council’s Stewardship Code recommends that institutional investors publicly disclose their voting records, many have been silent on the topic. Asked about their votes at Constellation, State Street Global Advisors (SSGA), Vanguard and BlackRock (all signatories of the FRC’s Stewardship Code) said they don’t comment on individual companies or votes. Janus Henderson, also a signatory of the Code, had not responded to the request ahead of publication.Fidelity Institutional Asset Management also declined to disclose its vote. Norges Bank proved an exception by publishing its vote – in favour of the resolution at Constellation – on its website.

At Hermes EOS, the stewardship and engagement unit of Hermes Investment Management, Natacha Dimitrijevic told RI that they recommended their clients to vote in favour of SHARE’s shareholder resolution at Constellation.

“We view diversity as the bedrock of board effectiveness, necessary to challenge senior executives and non-executives, as well as to counter groupthink and unconscious biases,” Dimitrijevic said.

UK proxy advisor, PIRC (which advises the £200bn UK Local Authority Pension Fund Forum) recommended to vote for the resolution.

In the US, the number of board diversity resolutions is relatively low, according to Jackie Cook, founder of proxy voting analysis firm FundVotes, despite this issue having achieved a significant profile.

“I believe that many more resolutions would have been filed and successfully resolved prior to the proxy being issued, given how important it would be to companies to not have this resolution appear on their ballots,” Cook told RI.

According to FundVotes’ data and analysis, no more than 14 resolutions have made it to US ballots since September 2017 (that includes resolutions touching on other gender and non-discrimination issues beyond the three only categorised as board diversity proposals).

Among the proxies already voted on during the 2018 AGM season, there is a resolution at Starbucks asking for a diversity report on race and gender, filed by Trillium Asset Management, which garnered 35% of votes.

The highest support so far, 51%, was achieved at PaloAlto Network, a cybersecurity firm, on a similar resolution also filed by Trillium.

At Exxon’s AGM, a resolution filed by the City of New York Retirement Systems requests that management to discloses a “board diversity matrix”. This will be voted on May 30th.

In the UK, Legal & General Investment Management (LGIM) has taken a tough stance on diversity laggards and said it will vote against the chairs of FTSE350 boards with less than 25% of female directors. Asked which companies these are, an LGIM spokesperson said it would not disclose names.

According to the latest Hampton-Alexander review published in November 2017, which analyses gender balance in FTSE leadership (both boards and executive committees) and ranks constituents accordingly, 337 of them would potentially fall under LGIM’s gender targets.

Just among the FTSE100, there are 29 companies with under 25% female board directors, 139 among the FTSE250 and 169 among the FTSE350.

In 2017 LGIM said it voted against 37 boards chairs or chairs of nomination committees. Its voting records are published here.