Willis Towers Watson has accused the investment industry of having ‘one hand on the wheel’ when it comes to stewardship, and says there is an urgent need to accelerate progress on this issue.
In a new paper the global brokerage has set out a five point plan to accelerate change and boost stewardship among asset managers, and so help address issues such as climate change, board diversity and executive pay.
Willis Towers Watson says it has identified key issues which five key ‘catalysts’ which it says could bring about change across the industry.
- Resources: Willis Towers Watson says stewardship resourcing is sparse in the context of the task and the size of the opportunity. If a quarter of one basis point of every asset invested was directed to stewardship, that could mean stewardship teams over 10 times larger than at present, on average
- Clarity: The report says there is a greater need for tangible and specific milestones around stewardship success looks like. Asset managers should also be more accountable when it comes to meeting these targets.
- Voting: Willis Towers Watson claims voting rights are sometimes under-utilised and at times there appears to be reticence to vote differently to company management recommendations.
- Collaboration: at present the report claims inter-manager collaboration is limited, but stewardship is an area where collaboration, not competition, is often in the interests of end savers.
- Leadership: There is room for stronger leadership on this issue, for example proactively setting out the standards expected of companies.
Willis Towers Watson says these levers should enable more progress to be made in various subject areas ranging from board quality – for example the processes of independent directors – to climate risk where initiatives can lack sufficient urgency or depth.
Willis Towers Watson senior director and head of equities Stephen Miles says: “We wanted to share this research widely to highlight the importance of stewardship as a key lever by which asset managers can create value for end savers. There has been good progress in some areas but there is a lot more to reach for.
“As large index tracking asset managers continue to grow and become increasingly dominant shareholders of many companies, so grows their responsibility for high quality stewardship.
“Some may see it 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.
There should be no place for halfhearted, reactive stewardship and there is a huge opportunity for those who really step up.”
The paper — ‘Investor stewardship: one hand on the wheel?’ — summarises research on six large asset managers, who between them manage assets of $17 trillion. This includes BlackRock, Legal & General Investment Management (LGIM) Northern Trust Asset Management, State Street Global Advisors, UBS Asset Management and Vanguard.
Willis Towers Watson says all six acknowledge their stewardship responsibility and are taking positive actions, in their own way, to raise their game. For example, BlackRock Chairman Larry Fink is known for communicating ‘from the top’ through his public annual letters to company CEOs. Meanwhile, SSGA has helped to raise awareness around gender diversity on boards through its ‘Fearless Girl’ campaign.