Is ownership in a portfolio company obliging the institutional investor to vote in all general meetings of portfolio companies? Is an asset manager obliged to engage with portfolio companies? Why some institutional investors choose to stay silent and not to vote during general meetings?
SRD II is a part of the Capital Markets Union (CMU), an initiative championed by the EC to regulate the financing of European infrastructure and further develop the capital markets across the 27 EU member states. SRD II promotes responsible behaviour by companies due to greater shareholder involvement.
SRD II indicates that assets managers must report annually on their shareholder engagement and investment strategy, making these details available on the buy-side firms’ websites. Voting behaviour must also be disclosed in addition to their use of proxy advisor services.
In Romania there are only few assets managers that implemented such obligations, even they are in force from 2020.
The big surprise is that there are asset managers that do not vote at all in portfolio companies and this aspect is clear from the quorum registered by companies listed on Bucharest Stock Exchange or Warsaw Stock Exchange announced after each meeting.
We identified few reasons of such investors’ inactivity:
- there many general meetings (even monthly general meetings for some Romanian companies)
- the voting process is much too difficult for some companies and sometimes involves additional costs
- some institutional investors seem to be afraid of the reactions of the Romanian or Polish state when voting in a general meeting of a company controlled by the State
How active ownership works?
Active ownership is when shareholders engage in a company, they have invested in to influence the company’s strategy and actions. It is a method often used in responsible investing to directly influence a company’s decisions and when working with corporate social responsibility.
- Engagement: When shareholders approach the management of portfolio companies for a direct dialog.
- Voting: As an owner, the shareholder exercises its influence to vote for or against proposals at the company’s general meetings or bring forward your own proposals.
- Collaborating with other investors: Investors can decide to team up to gain more influence on a specific topic/issue. This is a common method when working with active ownership and ESG.
Active ownership works very well for some investors. There are many examples of investors individually or together with other investors have succeeded in influencing portfolio companies. However, there are also cases where investors’ efforts are not successful. If a company fails to deliver the necessary change, exclusion may be the only option and reputable institutional investors no longer invest in such a company. But how a silent investor work and how his behavior influence its performance?