The Advisors' Blog

– Broc Romanek

Here’s news from this “Financial Times” article:

State Street Global Advisors is to get tough on executive pay — and it will signal its displeasure over lavish packages by refusing to back them. Previously, the $2.8tn-in-assets manager voted “for” or “against” on pay. Now the Boston group, the manager of the world’s largest passive investment fund, will indicate its unhappiness by abstaining.

Rakhi Kumar, head of corporate governance at SSGA, said that last year the group had voted against nearly 600 of 5,200 pay proposals. It had concerns over 300 more, which it classed as “qualified support”. In this year’s round of shareholder meetings, SSGA will make clear its unease by abstaining. “Sometimes you have a concern on structure, sometimes there could be a one-off payment that . . . makes us uncomfortable,” Ms Kumar said. “It’s something typically we supported with a heavy heart. That will be more transparent now.”

Passive investment groups are increasingly using their influence after trillions of dollars flowed into exchange-traded and index-tracking funds. Unlike traditional mutual funds, passive funds cannot sell shares if they think a management or board is doing a poor job. With many institutional investors adopting environmental, social and governance principles, it has increased the pressure on the big three, BlackRock, Vanguard and State Street, to take a more active approach.

Some corporate governance experts say an abstention does not go far enough. They argue that votes against pay packages are more powerful. Larry Fink, BlackRock chief, last month sent a letter to corporate executives arguing that “every company must not only deliver financial performance but also show how it makes a positive contribution to society”. He also promised to double the number of people in the asset manager’s “shareholder stewardship” team. “The time has come for a new model of shareholder engagement,” Mr Fink wrote.

SSGA has tried to take a lead before. It made a splash a year ago with “Fearless Girl”, a sculpture that appeared to be staring down the charging bull in lower Manhattan. The group followed that with a promise to unsettle companies with all-male boards. In 400 instances it voted against the re-election of the chair or most senior member of a board’s nominating and governance committee.

Ms Kumar said that SSGA’s abstention drive would begin with votes on pay but could cover other management proposals. She said that talks had started with big companies about how they should interpret such a vote. This kind of engagement should be routine for companies that effectively manage “permanent capital”, said Cyrus Taraporevala, SSGA chief executive.

The firm launched the first US-listed ETF – the SPDR S&P 500 ETF – 25 years ago; it currently has more than $302bn in assets and is the most-traded security in the world, with an average daily trading volume of $25bn. He said: “We don’t have the luxury of saying, ‘we’ll deliver to you the S&P 499, because we didn’t like this last company so we sold it out’. “This is a huge focus for us, and it’s something our clients increasingly want us to do.”