Morningstar examined the voting records of self-described “diversity” funds.
We have some thoughts:
1. It is great that Morningstar is looking at and comparing the proxy voting records of the funds it covers. It should do more.
2. For example, it should look at the proxy voting records of all funds, whether they are explicitly in support of diversity or not.
3. This evaluation should also look at votes for boards that fail to meet diversity guidelines.
4. ESG funds should be evaluated on the proxy proposals they submit (none here) as well as the way they vote.
Of the three funds reviewed, State Street’s SHE voting record is the least aligned with gender and diversity and with the investment objective stated in the fund’s own prospectus, namely, to invest in U.S. companies that “are leaders in advancing women through gender diversity on their boards of directors and in management.”
The March 2016 press release accompanying its launch articulates an even more lofty goal: “SHE seeks to help address gender inequality in corporate America by offering investors an opportunity to create change with capital and seek a return on gender diversity.
”State Street’s “Fearless Girl” initiative shows a commitment to improving board diversity, with its public placement of a statue in New York—a call to companies in their portfolios to increase the number of women on their corporate boards—and public statements around State Street’s intention to use proxy voting power if companies fail to take action. Furthermore, the firm recently reported that it voted against more than 500 companies’ nominating committees where boards failed to add a female director.
While gender has been an engagement priority for State Street, SHE’s proxy voting record seems less committed. SHE failed to support eight of the 10 gender and diversity resolutions it faced, voting against six and abstaining on two. Notably, SHE failed to support any of the five pay-equity resolutions that came to a vote in their portfolio over the past three years. SHE is evidence that a fund can state an ESG-focused investment objective but can also then vote in opposition on relevant shareholder resolutions.