Are the rights of institutional investors increasingly under pressure?

In the series A quick call with…, we speak with an expert about a current event in the field of economics, (responsible) investing, pensions, and income. This time, it's Tara-Jane Fraser (Senior Portfolio Manager Responsible Investment Equities at APG) discussing the hurdles that make it more difficult for institutional investors to exert influence at the shareholders' meetings of large companies.

Attending an Annual General Meeting (AGM) in person is becoming increasingly difficult for large investors, BNR recently reported. According to Rients Abma, director of Eumedion, an advocacy organization for institutional investors, this is primarily due to lengthy and cumbersome verification checks. This prevents representatives of institutional investors from engaging in discussions with directors, supervisors, and fellow shareholders of the companies in which they invest, Abma told BNR.

Deadlines
Fraser, who besides her role at APG also chairs Eumedion’s investment committee, notes that APG has not yet encountered increased difficulties in physically attending an AGM. “With an emphasis on 'increased', because we are indeed already experiencing obstacles in various markets to be present at AGMs, for example in Japan. Abma focuses on the issue growing within the Netherlands, which we have not expereinced. However, that does not mean that it does not exist and we welcome the concern raised by Eumedion as this enroaches on the rights of shareholders. As an institutional investor, APG faces another growing issue, Fraser continues. “The deadlines by which we must submit a vote on a shareholder resolution are being moved further forward. This means we have less time to gather the necessary information and cast a well-informed vote.”

APG, which represents its pension fund clients, including ABP, at shareholders' meetings, has raised its concerns with both Eumedion and the so-called custodian banks. These are financial institutions like JP Morgan and BNY Mellon that manage securities such as stocks and bonds on behalf of investors. They set the deadline by which an investor must cast their vote ahead of the shareholders' meeting. “The custodian banks are moving the deadline further away from the AGMs, claiming they need more time to collect all the votes. We question this, in an era where everything is becoming more digital and efficient. Ironically, a new external service provider has recently entered the market to facilitate the voting process. Since they are facing start-up issues, they are currently forced to extend deadlines rather than shorten them, which was their original goal.”

A large institutional investor like APG has to deal with different deadlines for AGMs in different markets. In the United States, for instance, a vote sometimes must be submitted just 24 hours before the meeting. This means the investor has until the day before the AGM to gather enough information, communicate with the company in which they are investing, and make a well-considered vote. However, it also happens that a deadline is set weeks before an AGM, cutting into the investor’s preparation time.

Restrictions
The question is whether this trend of stricter deadlines is related to recent restrictions on shareholder rights. In addition to creating barriers for institutional shareholders to attend an AGM in person, there is the case of ExxonMobil against Follow This and Arjuna Capital. These groups wanted to bring a resolution for more ambitious sustainability plans to a vote at ExxonMobil’s AGM. The oil company opposed this and took the activist shareholder groups to court, leading them to withdraw their resolution. “Shortening the deadlines is essentially unrelated,” Fraser states. “It’s the custodian banks that set the deadlines, not the companies themselves. But this also doesn’t contribute to a constructive climate for shareholders. Shareholder resolutions, particularly in the area of ESG, are becoming increasingly complex. It takes more time to study them and decide on your vote. Shorter deadlines don’t help in this regard.”

Digital instead of physical
Another trend Fraser regrets is that since the COVID-19 crisis, companies increasingly choose digital AGMs and cancel the physical meetings. “This goes against our wishes and those of Eumedion. There is essentially nothing wrong with a digital AGM, but there also must be the possibility for shareholders to meet in person and make their voices heard. This is often more difficult when there is only a digital AGM. This ties into Eumedion's concern about the limitations on physically attending as a shareholder due to time-consuming and cumbersome procedures. It is up to us as institutional investors and to Eumedion as an interest group to continue making it clear that shareholders' rights must not be compromised."