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Corporate governance
BlackRock, Vanguard and State Street
bulk up governance staff
BlackRock, Vanguard and State
Street expand policing of companies they invest in
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View of State
Street corp © Bloomberg
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January 28,
2017
by:
Madison
Marriage
BlackRock, Vanguard and State Street
have expanded their corporate governance teams significantly in
response to growing pressure from policymakers and clients to
demonstrate they are policing the companies they invest in.
The move by the world’s three largest asset managers,
which together control nearly $11tn of assets, will help address fears
that investors are not doing enough to monitor controversial issues
around
executive pay and board diversity
at the companies they invest in.
New York-based BlackRock now has the largest corporate
governance team of any global asset manager, after hiring 11 analysts
for its stewardship division over the past three years, bringing total
headcount to 31.
Vanguard, the Pennsylvania-based fund company that has
grown quickly on the back of its low-cost mantra, has nearly doubled
the size of its corporate governance team over the same period to 20
employees.
State Street, the US bank, has almost tripled the size
of the governance team in its asset management division to 11. Both
Vanguard and State Street said their governance teams will continue to
grow this year.
The focus on corporate governance comes as regulators
and politicians around the world increasingly scrutinise the
relationship between companies and their shareholders. Asset managers
have previously been accused of routinely supporting company proposals
in order to avoid damaging their relationships with senior executives.
Theresa May, the British prime minister, launched a
far-reaching consultation on reforming
corporate governance in the UK
last November in a bid to improve business behaviour. The government
wants to strengthen shareholders’ power, but is also considering
whether to force large investors to disclose their voting records at
companies’ annual general meetings.
The EU’s shareholder rights directive — a vast set of
rules that is expected to come into force across Europe in 2019 — is
similarly expected to strengthen shareholders’ rights, as well as to
force large investors to reveal more information about how they engage
with companies.
Glenn Booraem, Vanguard’s head of corporate governance,
said: “Vanguard continues to invest in the research and infrastructure
that enable advocacy and voting across a global portfolio, and we
expect to continue our focus on this important capability over the
coming years.”
Other large asset managers that have expanded their
stewardship teams over the past three years include Fidelity
International, which now has 12 governance analysts; Legal & General
Investment Management, which has 10; Aberdeen Asset Management, which
has 20; and US public pension funds Calpers and Calstrs, which have 29
and 12 respectively.
Large pension funds and other institutional investors
are simultaneously demanding more information from their external
asset managers on their approach to corporate governance, putting
pressure on fund houses to increase resources in this area.
Rakhi Kumar, head of corporate governance at State
Street Global Advisors, said client demand for information on the
company’s approach to this issue had “gone up significantly”.
The belief is that better governance analysis helps
investors avoid companies that are on the brink of a costly scandal.
This issue has come to the fore over the past two years after the
exposure of serious governance failings at
Petrobras, the Brazilian oil
company, and
Volkswagen, the German carmaker,
which caused their share prices to fall dramatically.
An investment director at a large US pension fund,
speaking on condition of anonymity, said his scheme looked for careful
governance analysis at the external asset managers it uses. “US asset
managers are putting more firepower behind evaluating corporate
governance, which is increasingly being viewed as a risk management
issue. Companies with poor governance are higher risk,” he said.
Copyright The Financial Times Limited 2017.
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