Voting against poor governance can prove fruitful, according to Neuberger Berman’s head of ESG investing Jonathan Bailey, who has shared how proxy voting – and giving indication of how the firm will vote – has resulted in positive change at some portfolio holdings.
In his Green Dream video interview, Bailey discusses progress with Netflix and Berkshire Hathaway and targets for gender diversity on boards.
Watch the full video interview above or the transcript is below.
NK: I wanted to talk to you a bit about engagement and the initiatives you have at Neuberger Berman and NB Votes I understand is in its fourth year now. That’s around sharing advanced voting disclosure during proxy season. Can you talk a bit more about what that involves and share some success stories?
JB: Yeah, I’m happy to do so. As you say, this is something that we started about four years ago and it started because we are doing a lot of work to decide how to cast votes on behalf of clients in their best interests.
And if you just look at the end of the season, and you see ‘for’ and ‘against’, you really have no idea about the rationales, the logic, the thinking and the dialogue with management and board members that’s gone into it. So, we decided that we would start providing a lot of that rationale and explanation well in advance of the meetings happening.
So, we would put out publicly how we’re going to vote, why we’re going to vote, the way we’re going to vote on some high profile, key votes in meetings. And that allows us to communicate very clearly to the company what our expectations are and also for them to see where others, perhaps in the sector or facing similar challenges, are performing really well.
About half of the votes that we put out are in favour of management and the board, and about half are against management, its recommendations and the board’s recommendations. So that gives us a nice balance of being able to really applaud progress, but also to call out where more action is needed.
NK: Fantastic. And are you starting to see some trends around engagement and where these votes are focusing on at the moment?
JB: Obviously, there are things in E, S and G, and clearly classic governance topics are an important starting point. So, for example, we’ve had Netflix in the NB Votes initiative for multiple years. Sadly, in the first couple of years it was voting against a number of members of the board because of poor governance at Netflix.
For example, not having the whole board up for election each year, not having majority votes, not having shareholders being able to call a special meeting… frankly, things that most companies have adopted by now. And Netflix was an outlier in not having brought in these really basic shareholder rights programmes. And, more importantly, there had been shareholder proposals asking for these rights that had gotten majority support, and the board then ignored the shareholder proposals.
So, we’ve been publicly voting against board members for multiple years through NB Votes, but we’re delighted this year to be able to actually support the re-election of the chair because Netflix had finally taken on board the feedback that we and other shareholders had provided and had committed to putting in place these important basic governance standards.
That was a real success story of consecutive years of dialogue and NB Votes leading to improvements in governance.
So, governance is important, but obviously there also are topics on the environmental and social side. And what we’ve been particularly focused on is climate, which I think we all see as being a pressing challenge for companies as they manage the transition.
And so that’s one where we’ve been supporting proposals, for example, at Berkshire Hathaway this year calling for, again, pretty basic carbon disclosure and reporting, and supporting shareholder proposal there. So that’s something where we provided the rationale and explanation and that sadly didn’t get majority support. But it’s a helpful escalation tool with the company.
NK: It’s put it on the radar hasn’t it, it’s out there. I understand that Neuberger has made some announcements recently on gender diversity on boards, what’s your plans around that?
JB: Well, at this point, we really think companies have had a good amount of time to make sure that they have a diverse range of skills and experiences on their boards, and so we introduced at the beginning of this year an expectation that there be a 30% proportion of women on gender diversity, on boards. I say women because sadly, most of the time it’s not that there’s a majority of women in place.
We brought into place a 30% gender expectation at the beginning of this year. And we said to companies, we’re not going to vote against anybody this year. We’re being transparent around our expectations. And so next year, having given companies sufficient notice and having reached out to the small number of companies we own where that wasn’t the case, we will now look at escalation mechanisms, including potentially voting against the chair of the nominating committee or other members of the board if they haven’t been able to make sufficient progress. The data is very clear that having diverse perspectives on the board leads to better decision making. And that’s ultimately what’s in our clients’ best interests.
NK: Absolutely. I know I asked you this last time we had a video chat, which I think was in lockdown so it was a bit different. But what’s your favourite sustainable drink or snack?
JB: Well, I just came back actually from seeing some clients in Japan. And so I brought a bunch of seaweed snacks back with me, we’ve got a little bit of a flavour for seaweed snack.
So that’s probably my go-to at the moment for a sustainable snack.
NK: Okay. Fantastic. Thank you very much for your time today and for coming in.
JB: Thank you for having me.
