Investment managers are stepping up their corporate governance activity, although they are doing so behind closed doors and not through high-profile proxy-voting campaigns.
A BlackRock initiative seeks to take a leadership role away from proxy-advisory firms.
Investment advisers' activity, however, takes place confidentially through discussions about corporate governance concerns, including executive compensation.
Executives of money management firms decline to identify specific companies. They think they can accomplish more in improving corporate governance through private discussions with company managements and boards than through high-profile proxy-voting activity, such as introducing shareholder proposals.
“I think that the single biggest change has been a much higher level of engagement or communication with the companies on governance issues wheth-er initiated by them or by us” in advance of annual meetings, said Mi-chelle Edkins, San Francisco-based managing director and global head, corporate governance and responsible investment, for BlackRock.
But one thing hasn't changed.
“We have not filed proxy proposals in the past and don't expect to (do so) this year,” said Glenn Boor-aem, principal and head of corporate governance at Vanguard, Mal-vern, Pa. “I would characterize our program as one of engagement,” guided by corporate governance principles Vanguard has developed, Mr. Booraem said.
Vanguard this year plans to engage with some 500 companies, mostly based in the U.S., he said.
Like Vanguard, Ms. Edkins said BlackRock doesn't file shareholder proposals, largely because its size enables it generally to have private conversations with companies.
“In our experience (private engagement) has a fair degree of traction with management. And we can raise (an) issue without having to dictate how management should address it,” she said. “In a way, that's always the weakness of the shareholder proposal route.”
Ms. Edkins said, “We've had a really positive response” to a January letter about corporate governance that Laurence D. Fink, BlackRock CEO, sent to some 600 companies worldwide in which the investment adviser has very large holdings on behalf of its clients, half of which are in the U.S.
“Companies have consistently said it's really helpful to be asked to speak with our mainstream investors.” Ms. Edkins said.
Mr. Fink in the letter encourages “those companies to engage with shareholders before they engage with proxy advisers,” Ms. Edkins said.
BlackRock believes companies should understand shareholder viewpoints on corporate governance issues “rather than focusing on just getting a green light” from proxy-advisory firms, she added.
“It is not a criticism of the proxy advisers,” Mr. Edkins said. “They are really an important part of the process and help us identify the companies that we should be focusing our efforts on.”
In this proxy season, Ms. Edkins pointed out, “The level of engagement has increased.” She estimates BlackRock's engagements with companies in which it invests is up 10% to 15% from last March.
BlackRock expects to engage with between 1,000 and 1,500 companies globally, about 40% of them in the United States.
“I think a lot of practitioners would point to that (rise as) having been triggered by the introduction of say-on-pay resolutions,” giving shareholders a non-binding vote on whether to ratify the compensation of the CEO and others in top executive management, Ms. Edkins said.