The UK’s biggest fund manager is ramping up the pressure on big companies that lack board independence, highlighting Japan and the Asia-Pacific region as the biggest culprits.
Legal & General Investment Management (LGIM), which manages around £1 tn ($1.3 tn) worth of assets, voted against 3,864 company directors globally last year – a 37 percent increase on 2017 – following its strengthened voting policies.
It notes that the issue of board independence and overboarding triggered the most votes against directors. LGIM voted against 164 directors in the UK because of independence concerns, compared to 94 in 2017.
Almost three quarters (70 percent) of LGIM’s votes against directors in the Asia-Pacific region were due to concerns about board independence. The vast majority of those votes (91 percent) were against directors at Japanese companies. That said, Sacha Sadan, LGIM’s director of corporate governance, praised the progress that is being made on corporate governance in Japan.
‘We acknowledge Japan’s progressive stance on corporate governance and applaud the efforts made over the years to improve market standards,’ Sadan says. ‘This includes moves to make one third of board members independent. In an attempt to build on this momentum, we provided feedback to the Japanese regulator on how to enhance corporate disclosures.
‘We requested that companies disclose the nature of their top 30 cross-holdings along with any position that exceeds 1 percent of the capital base. We also recommended that an official definition of board independence is outlined in the code. This would allow companies to disclose any factors that could impact independence consistently, such as tenure and time lapses between former roles.’
On the issue of overboarding, the money manager opposed 337 directors of North American companies. This was also a concern in the UK, where 30 percent of LGIM’s votes against directors were due to overboarding.
‘We continued to engage last year on board composition, discussing the topic at 104 of our meetings with companies globally. We also took a stronger stance on the issue through voting and in our work with regulators,’ says Sadan.
‘We will always aim for constructive dialogue, but the absence of action may result in us sanctioning companies through our votes.’
LGIM is also taking action against corporates that are not taking urgent action to avoid ‘climate catastrophe’, excessive pay and lack of diversity.
Sadan adds that while LGIM is encouraged by the progress being made, there remains more to be done and real success will be dependent on collaboration. He says companies need to create long-term sustainable business models and deliver value for investors.