What do you proxy voters really care about?

Executive pay, diversity and financially material environmental, social and governance (ESG) factors were key focus points for proxy voters over the past 12 months, according to new figures from Morgan Stanley Investment Management (MSIM).

For the MSIM’s International Equity team, which partakes in the organisation’s proxy votes, among the most common reasons for voting against management were related to compensation, the election of directors, and shareholder ESG proposals, said Bruno Paulson, managing director for the International Equity team at Morgan Stanley Investment Management.

Indeed, executive pay has remained a key focus point for shareholders. Paulson further cited the voting patterns of the International Equity team, noting that it voted against 22 per cent of management say on pay resolutions over the 2022-23 financial year.

Paulson urged public companies to put in place pay plans to ensure long-term thinking succeeds over short-term opportunism. The wrong incentives, he said, such as an excessive focus on earnings per share (EPS), can encourage management to make decisions that boost profits in the short run at the expense of their companies’ ability to compound over the long run.

Overall, the International Equity team at Morgan Stanley Investment Management voted against management in nine per cent of cases, and 69 per cent of meetings had at least one vote against management.

According to Paulson, proxy voting, which enables shareholders to vote in shareholder meetings when not in attendance, can play a decisive role in enhancing long-term investment returns for public companies, noting that company boards and management now pay increasing attention to it.

The International Equity team, MSIM data showed, also voted against the nomination of committee members if they have had concerns over diversity. In total, they voted against the election of 27 directors (representing four per cent of the total) in the last 12 months.

Citing Boston Consulting Group figures, MSIM noted that companies with leadership teams with above-average diversity generate – through product innovation – revenues that are 19 percentage points greater than those with less diverse leadership teams. As well, they enjoy higher earnings, before taxes and interest (EBIT) margins.

Moreover, higher levels of gender diversity also correlate with fewer instances of governance-related controversies, including bribery, corruption and fraud, according to a study by MSCI.

Direct engagement with companies “is the best route to assess a company’s approach to DEI, which includes understanding a company’s strategy, policies and reporting,” according to the MSIM’s International Equity team.

“Meeting management affords them the opportunity to gauge integrity, ask the difficult questions, nudge for progress and, where they believe it to be financially material, encourage improvement.”