Prominent asset management firms like BlackRock, State Street Corp., and Vanguard Group have recently taken a more active role in shaping the governance of companies they invest in. But are they doing enough?
According to a new report from Willis Towers Watson, “stewardship” actions, also known as corporate engagement or shareholder activism, currently account for a “small fraction” of asset management industry activities. The consulting and investment firm said the investment industry needed to “substantially step up its game,” citing its analysis of six major players: BlackRock, Legal & General Investment Management, Northern Trust Corp.’s asset management arm, State Street Global Advisors, UBS Group's asset management unit, and Vanguard.
Willis Towers Watson said these six firms “acknowledge their stewardship responsibility and are taking positive actions, in their own way, to raise their game.” Examples cited by the advisory firm included LGIM’s climate impact pledge, a campaign launched in 2016 to encourage companies to manage their exposure to climate risk, and State Street’s Fearless Girl initiative, which is focused on improving gender equity at the board level.
Still, Willis Towers Watson said these firms and their peers needed to take more action.
“There has been good progress in some areas, but there is a lot more to reach for,” Stephen Miles, head of equities at Willis Towers Watson, in the firm's statement Tuesday. “Some may see [stewardship] as an inconvenient responsibility as it involves time-consuming and, at times, uncomfortable conversations with company management. But stewardship is a critical part of corporate oversight and value creation within the industry.”
According to Willis Towers Watson, stewardship done well leads to “better returns for investors, better run companies, better controlled societal and environmental footprints — all while being cost-effective.” Yet asset managers currently devote limited resources to these activities: The six firms analyzed by Willis Towers Watson had, on average, 18 employees dedicated to stewardship as of mid-2018 — or 0.7 staff members for every $100 billion in assets under management.
Other problems holding asset managers back, according to Willis Towers Watson, are the lack of clarity on what successful stewardship looks like, insufficient collaboration between firms on key issues like climate change, and a deficit of leadership on stewardship activities. The advisory firm also noted that asset managers currently “appear to have a strong default position of supporting company management” over activist shareholders, which may “act as a barrier to change and send a false signal to other investors and peer companies about the issue in question.”
Moreover, Willis Towers Watson said none of the six asset managers in its sample have ever filed a shareholder resolution — though one “plans to do so in the future.”
“There should be no place for halfhearted, reactive stewardship,” Miles said. “There is a huge opportunity for those who really step up.”