State Street Corp. has flexed its muscles as an influential shareholder, demanding that large U.S. companies including SL Green Realty Corp., Verisk Analytics, and Ford Motor Co. improve their corporate governance practices or explain their rationale to get its vote of approval.
Real estate investment trust SL Green, data analytics provider Verisk, and car maker Ford were among the 66 Standard & Poor’s 500 companies that State Street Global Advisors identified as failing to meet its governance principles in its initial screen in March 2018, according to its annual asset stewardship report released Thursday. Before their annual general meetings, many of these companies, including SL Green, Verisk, and Ford, either became compliant or provided “sufficient rationale for their practices,” State Street said in the report.
“We engaged with companies to understand their reasons for noncompliance,” the asset manager said. “Consequently, we voted against 40 companies that could not satisfy our ‘comply-or-explain’ expectations in 2018.”
State Street is among the so-called Big Three index fund managers, along with BlackRock and Vanguard Group, that is using its heft to influence environmental, social, and governance practices at companies. Within corporate governance, State Street engages companies on areas such as shareholder rights, board structure, and gender diversity, according to its report.
“Verisk made a series of changes to our governance practices in the most recent year, so I cannot pinpoint one specific change that drove State Street’s vote,” Stacey Brodbar, head of investor relations at Verisk, said in an email. For example, she said the company adopted a by-law amendment to introduce proxy access.
Verisk — which provides data analytics for the insurance, energy, and financial services sectors — also refreshed committee leadership and membership, including naming a new lead independent director, according to Brodbar. Other changes to its corporate governance practices, such as updating its code of business conduct and ethics, are found its proxy statement, she said.
Rakhi Kumar, State Street’s head of asset stewardship and ESG investments, declined through a spokesperson to comment on the firm’s initial corporate governance concerns at Verisk, SL Green, and Ford.
In a paper earlier this year on its investor stewardship group principles, State Street said the lack of proxy access is the most common reason for non-compliance, while lack of annual director elections, inadequate board refreshment practices, and insufficient board independence are other typical areas where companies fall short of its shareholder expectations.
A spokesperson for SL Green, which bills itself as New York City’s largest office landlord, did not immediately provide comment on the issues State Street had with its corporate governance. Ford’s chief executive officer James Hackett did not immediately return a phone call seeking comment.
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State Street, BlackRock, Vanguard Group, and BlackRock vote 25 percent of the stock in the largest U.S. public companies, a portion that could soon rise to 40 percent, according to a draft paper published last month by Alexander Platt, a lecturer at Harvard Law School. He suggested that policymakers in “heated debate” over the influence of the Big Three consider reforms that strengthen their overlooked roles as corporate enforcers.
State Street is also engaging companies on areas such as climate change and social issues such as pay equality and sexual harassment in the workplace, according to its asset stewardship report.
“Through strong engagement, voting and thought leadership, we have seen companies respond to our calls to action to enhance diversity at the board level, strengthen board leadership and improve disclosure on their sustainability practices,” State Street said Thursday in the introduction to the report.