The Lemon Fool

Not a subject on which I know enough to comment, but perhaps others do?

BBC just published a story about institutional investors pushing for investees to clean up. The particular story is that Aviva have written to investees, saying they will look to remove directors of companies that fail to clean up. They also namecheck Blackrock in the piece.

Anyone familiar with this kind of activism? Fools working in fund management or in management on the receiving end of Big Investor pressure?

What do you mean by 'clean up'? That is probably a matter of opinion.

I have attended AGM's of both HSBC and Unilever when the Q & A session has been dominated almost to the exclusion of anything else, by questions from activists covering topics like the continued funding of coal extraction and the use of palm oil and so on. Directors seemed and had no option but to go along with them and do their best to answer their questions. Incredibly distracting for everyone and certainly no help in trying to run a business for profit I would have thought. Unilever's derided comments about Helmann's is simply an extension of that.

Aviva and others like them are big shareholders in many companies and clearly feel that they need to be seen to be doing something. Whether, as index fund managers, they should be is another matter of course.

Dod

Dod101 wrote:What do you mean by 'clean up'? That is probably a matter of opinion.

Dod

Deliberately vague, to leave the subject as wide open as possible to any prospective insights, regardless of how you interpret it.

Anyway, looks like a fail.

Dod101 wrote:Aviva and others like them are big shareholders in many companies and clearly feel that they need to be seen to be doing something. Whether, as index fund managers, they should be is another matter of course.

Back when I worked for a major provider of index funds, the general rule was that we did not vote in proxy battles and other shareholder ballots. The principle was as you suggest - an index fund is a neutral holder of a share and should take no view on the activities of the underlying company.

There were some exceptions e.g. with some corporate action votes. But we stayed well clear of subjective and "ethical" issues and I thought that was the correct approach for a passive investor. Perhaps that is now changing?

I also take a fairly dim view of "activists" who buy a single share of a company they hate just so they can attend the AGM and be disruptive.

Lootman wrote:

Dod101 wrote:Aviva and others like them are big shareholders in many companies and clearly feel that they need to be seen to be doing something. Whether, as index fund managers, they should be is another matter of course.

Back when I worked for a major provider of index funds, the general rule was that we did not vote in proxy battles and other shareholder ballots. The principle was as you suggest - an index fund is a neutral holder of a share and should take no view on the activities of the underlying company.

There were some exceptions e.g. with some corporate action votes. But we stayed well clear of subjective and "ethical" issues and I thought that was the correct approach for a passive investor. Perhaps that is now changing?

Thanks for the reply. You kind-of confirm what I thought likely in the past, and the "Perhaps this is changing" is what I'm wondering about. Various media reports - including the one I originally linked featuring Aviva and Blackrock - suggest they may be becoming more active.

I also take a fairly dim view of "activists" who buy a single share of a company they hate just so they can attend the AGM and be disruptive.

Heh. Well, I guess if you're an Activist with a Cause, thats one gesture you can make. Personally if I dislike a company that much then I'm not buying any shares, thank you.

UncleEbenezer wrote:

Lootman wrote:

Dod101 wrote:Aviva and others like them are big shareholders in many companies and clearly feel that they need to be seen to be doing something. Whether, as index fund managers, they should be is another matter of course.

Back when I worked for a major provider of index funds, the general rule was that we did not vote in proxy battles and other shareholder ballots. The principle was as you suggest - an index fund is a neutral holder of a share and should take no view on the activities of the underlying company.

There were some exceptions e.g. with some corporate action votes. But we stayed well clear of subjective and "ethical" issues and I thought that was the correct approach for a passive investor. Perhaps that is now changing?

Thanks for the reply. You kind-of confirm what I thought likely in the past, and the "Perhaps this is changing" is what I'm wondering about. Various media reports - including the one I originally linked featuring Aviva and Blackrock - suggest they may be becoming more active.

I also take a fairly dim view of "activists" who buy a single share of a company they hate just so they can attend the AGM and be disruptive.

Heh. Well, I guess if you're an Activist with a Cause, thats one gesture you can make. Personally if I dislike a company that much then I'm not buying any shares, thank you.

And of course that is the point. Index fund managers cannot just 'not buy' the company but neither can they sell if they do not like what they are doing so I think they should remain neutral as Lootman has suggested. They are not acting as 'owners' in any real sense of the term and so I do not think they should have any right to try to influence them.

Dod

Dod101 wrote:And of course that is the point. Index fund managers cannot just 'not buy' the company but neither can they sell if they do not like what they are doing so I think they should remain neutral as Lootman has suggested. They are not acting as 'owners' in any real sense of the term and so I do not think they should have any right to try to influence them.

Dod

Indeed, index funds are constrained. But even index funds are owners, with the same rights as any other shareholder.

Rather than say index funds shouldn't concern themselves with corporate governance (which would help give management a blank cheque to do things that may not be in shareholders' interest, let alone the world at large), perhaps it would make more sense to say they may do so if they choose. The key then is transparency: an index fund should have a stated policy on whether it votes, and the criteria for such votes.

Actively managed funds - including those of Aviva and Blackrock - are of course a spectrum, from the openly activist to the closet tracker. They're perhaps where most of the real action (if it exists) lies?

UncleEbenezer wrote:

Dod101 wrote:And of course that is the point. Index fund managers cannot just 'not buy' the company but neither can they sell if they do not like what they are doing so I think they should remain neutral as Lootman has suggested. They are not acting as 'owners' in any real sense of the term and so I do not think they should have any right to try to influence them.

Indeed, index funds are constrained. But even index funds are owners, with the same rights as any other shareholder.

Rather than say index funds shouldn't concern themselves with corporate governance (which would help give management a blank cheque to do things that may not be in shareholders' interest, let alone the world at large), perhaps it would make more sense to say they may do so if they choose. The key then is transparency: an index fund should have a stated policy on whether it votes, and the criteria for such votes.

Actively managed funds - including those of Aviva and Blackrock - are of course a spectrum, from the openly activist to the closet tracker. They're perhaps where most of the real action (if it exists) lies?

What an index fund provider could do, although I know of none that do, is poll the fund-holders about which way the fund should vote. This could work either by all votes going to whatever the majority want. Or else split the vote according to how the fund-holders split on the issue. That's a fair amount of work for an index fund that runs on wafer thin expense ratios however.

If an index fund votes on some issues but not others then it is effectively expressing a viewpoint in how it chooses that, so I'd agree the policy should be consistent and public. An index fund is certainly entitled to have a view on, say, a corporate action that would affect the constitution of its underlying index, for instance.

Personally I have never voted on a shareholder ballot, as I tend to invest very dispassionately. I cannot think of a share I would not hold for ethical reasons. If I feel bad about owning a "vice" share then I can always donate part of my profit to an appropriate charity.

UncleEbenezer wrote:

Dod101 wrote:And of course that is the point. Index fund managers cannot just 'not buy' the company but neither can they sell if they do not like what they are doing so I think they should remain neutral as Lootman has suggested. They are not acting as 'owners' in any real sense of the term and so I do not think they should have any right to try to influence them.

Dod

Indeed, index funds are constrained. But even index funds are owners, with the same rights as any other shareholder.

Rather than say index funds shouldn't concern themselves with corporate governance (which would help give management a blank cheque to do things that may not be in shareholders' interest, let alone the world at large), perhaps it would make more sense to say they may do so if they choose. The key then is transparency: an index fund should have a stated policy on whether it votes, and the criteria for such votes.

Actively managed funds - including those of Aviva and Blackrock - are of course a spectrum, from the openly activist to the closet tracker. They're perhaps where most of the real action (if it exists) lies?

I do not disagree with any of this. Before Covid I used to attend the AGMs of HSBC and Unilever quite regularly and much of the Q & A time was taken up by mostly young ladies representing one pressure group or another trying to persuade the Directors to, say, stop supporting coal producers in the case of HSBC and often enough criticising Unilever for their palm oil plantations in Malaysia or Indonesia or some other far flung spot. These people were obviously known to and accepted by the Chairman but they could, with supplementary questions, take up a substantial amount of the time available. I suppose that that is how things are 'improved' but it detracted from the time available for other shareholders, more interested in the business outcomes, to have an opportunity to make their points.

That is though I suppose, democracy at work. Although index funds are just as much a shareholder as anyone else in the eyes of the law, they are in a different position from an active fund manager, in that they are forced buyers and sometimes forced sellers, with what is in reality likely to be an indifferent attitude to their actual holdings.

Dod

BBC's Business Matters programme discussing this right now.

Interviewing an L&G (I think) spokeswoman who is demanding, as shareholder, how Glencore will meet their commitments.