Big investors are losing patience with unresponsive corporate directors, and they’re showing it with their votes.Shareholders have withheld 20 per cent or more of their votes for 102 directors at S&P 500 companies so far this year, the most in seven years, according to ISS Corporate Solutions, a consulting firm specializing in corporate governance. While largely symbolic, the votes at companies such as Wells Fargo & Co. and Exxon Mobil Corp. are recognized as signals of displeasure and put pressure on boards to engage.
“Institutional investors are becoming more actively involved in communicating displeasure through their votes,” said Peter Kimball, head of advisory and client services at the consulting firm, a unit of Institutional Shareholder Services. “Voting against directors at large-cap S&P 500 companies is a way for an institution to send a signal to other, smaller companies about the actions that they don’t like. That feedback trickles down.”
While the Trump administration moves to reduce regulatory pressure on companies, big institutional investors are moving in the opposite direction. State Street Global Advisors and BlackRock Inc., for example, are increasingly taking an activist approach, calling for changes in diversity and corporate responsibility.
“Part of this is really the shift in investors to focus more on board quality,” said Rakhi Kumar, who leads environmental, social and governance investment strategy at State Street. “Board responsiveness is a key reason why shareholders will hold directors responsible. If engagement isn’t working and boards aren’t being responsive to our feedback, then we take action.”
State Street voted against 731 directors in 2016 and expects a similar number this year, after rejecting 538 in 2015, Ms. Kumar said. No longer are investors just “checking a box” to support directors, she said. State Street is encouraging companies to refresh their boards to get new and more diverse members. (emphasis added)