Vote Consistency


In 2021, the UK Department for Work and Pensions commissioned a nonbinding study on split voting.

Asset owners that pursue low cost market exposure tend to do so through pooled funds, administered by an asset manager.

Stewardship is typically undertaken centrally. It’s not typically feasible for an asset manager to provide engagement on one topic for one asset owner client, and on another topic for another client or to present two opposing views to a company where asset owners are not in agreement. Multiboutiques, with portfolio manager-led engagement would be an exception.

The challenge of navigating multiple client views becomes even more challenging for large asset managers when deciding how to vote.

One response is to introduce split voting. The asset manager will have its default view, but provide clients with the option to override that vote with their own view if they disagree.

Although some asset managers have provided split voting for some time, split voting has gained in appeal very recently including for pooled funds (where multiple asset owners invest in the same fund).

Accompanying the increased interest in split voting, is technology that allows the asset owner to determine the vote. The best known company is Tumelo – and a good example is the partnership between Tumelo, LGIM and Camden Pension Fund.

Tumelo’s website says, “Tumelo enables shareholders to have a voice on the issues they care about by providing expression of wish and pass-through voting technology to fund managers, brokers, and institutional investors”.

Here we need to define expression of wish and pass-through. Pass-through voting allows a saver (or, more often, the asset owner) to vote. Expression of wish allows a saver (or asset owner) to put forward a view, but it is nonbinding.

The arguments for and against

The arguments in favour of pass-through voting are as follows.

It shortens the intermediation chain, votes can fully reflect asset owners’ (and perhaps savers’) views and companies may be more likely to respond to asset owners (as the ultimate owner of their company).

Pass-through voting also helps address issues with market structure. Most asset owners’ liabilities are longer-term than their asset management mandates, and so the incentives on sustainability issues may differ. Passthrough voting allows asset owners to assess their asset managers on short-term performance, but engage and vote over long-term time horizons.

Pass-through voting can increase the legitimacy of asset manager voting (an asset manager can use pass-through voting decisions as an indication of their wider client base).

But against, asset managers may shy away from the difficult decisions.

With split voting, asset managers may take a step back on sustainability issues, allowing their more engaged (either for or against) clients to vote as they wish.

There are also a number of differences between Shareholder AGMs and democratic political elections, which are important for asset owners to understand. For example, a majority is not always necessary to prompt a company to act.

And voting, engagement and investment go hand-in-hand (a binary vote is a blunt tool on often complex issues). Split voting can disconnect voting from engagement (and the investment process).

Canbury view

At Canbury, we believe that with the right governance, pass-through voting allows for vote consistency.

Low cost pooled investments have grown in popularity and can offer asset owners market exposure, often including sustainability characteristics.

For asset owners with multiple investments with multiple asset managers, asset owner-led pass through voting allows for voting consistency. It is likely that different asset managers will invest in the same company, and may take different approaches to voting.

In the UK, asset owners must prepare annual implementation statements, disclosing their most significant votes; however, asset managers have
typically not disclosed (in advance) their votes, nor rationale. Pass -through voting can allow for voting consistency on significant votes across multiple asset managers, supporting implementation statement disclosures.

However, Canbury recommends asset owners accompany pass-through voting with the right governance mechanisms, in order to:

  • Select asset managers where stewardship (and voting) is core to the investment thesis, with alignment to the asset owner on sustainability issues.
  • Assess the extent of overrides (if asset owners’ pass-through voting consistently diverges from the asset manager’s default vote that should prompt an assessment of the manager).
  • Pre-define escalation measures, including (in theory) ending the investment.

In addition, Canbury encourages asset managers to consider:

  • Pre-vote disclosure (or, recognising the complexity asset managers face with asset owner clients in multiple regulatory jurisdictions, principlebased pre-vote disclosure) in which asset owner clients are consulted.
  • Published escalation measures where companies are not responding to stewardship (escalation measures may include votes against management on a particular issue, votes against a director or directors, or filing a resolution).
  • Post-vote outcome-based disclosures (the outcome achieved by the vote).

If you’re thinking about split voting, we can provide you and your team with an in-person briefing, setting out the opportunities and risks, and helping in policy development to ensure the right governance is in place.

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