How State Street Global Advisors Became an Unlikely Activist

One of the world’s largest passive investors is starting to look a lot more like an activist these days.

State Street Global Advisors, which mostly operates passive index funds but also has a sizable active management business, is getting increasingly involved in governance issues ranging from public company policies on the voting rights of shareholders to climate change. Ronald O’Hanley, president and CEO of SSGA, says the asset manager’s increasing involvement in governance makes sense.

“Our incentives are aligned with companies as we’re truly long-term investors. As long as it’s in the index, we’ll be invested in the company,” says O’Hanley, interviewed on the sidelines of the Milken Institute Global Conference, being held this week in Los Angeles. O’Hanley is scheduled to speak at two panels on Tuesday. Both discussions — one called “Activist Investors: Unlocking Value” and the other called “How to Accelerate Gender Diversity on Boards” — will address governance issues.

O’Hanley emphasizes that SSGA needs to be more creative in raising issues with companies because it can’t threaten to divest of specific holdings.

“It forces us to make our points in a different way,” he says. SSGA is getting more involved in governance for a number of reasons, including its growth in assets under management. As a result, SSGA often owns three to seven percent of a company.

“That puts certain burdens and requirements on us,” O’Hanley adds.

SSGA has also gotten more involved in governance as investors have become disillusioned with the one-size-fits-all opinions that are issued by proxy advisors such as Institutional Shareholder Services and as pension funds, endowments, and others increasingly want their views expressed to companies. Although SSGA doesn’t engage with each of the 9,000 companies that are in the indexes that SSGA’s funds track, it does meet one-on-one with many of the largest. Targets could include companies that are in a crisis or are the targets of shareholder activist investors.

“Activists might want a short-term pop that leads to long-term value destruction later,” says O’Hanley.

Asked about the lack of shareholder voting rights at Snapchat maker Snap, which went public in March, O’Hanley says SSGA will shortly put out a paper on the subject of multi-tier voting rights. He says the firm is thinking about whether companies like Snap, which he feels is an extreme case, belong in an index at all.

SSGA, for example, is considering whether it could create two versions of an index fund. One would weight companies by traditional metrics like market-capitalization, while another version could include weightings of companies based on voting rights.