Willis Towers Watson calls for a step change in investor stewardship

The investment industry should substantially step up its game when it comes to stewardship, according to a new research paper by Willis Towers Watson.

In a new paper, ‘Investor stewardship: one hand on the wheel?’, Willis Towers Watson calls on the investment community to redouble its stewardship efforts.

The paper summarises research on six large asset managers who collectively manage assets in excess of US $17 trillion: BlackRock, Legal & General Investment Management (LGIM), Northern Trust Asset Management, State Street Global Advisors (SSGA), UBS Asset Management (UBS) and Vanguard.

All of the managers 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.

While improvements have been made, stewardship activities still account for a small fraction of asset management industry activities. The paper identifies five catalysts for an acceleration in progress:

1. Resources – 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.
2. Clarity – Currently stewardship seems to lack urgency and accountability is soft. Tangible, specific milestones around what stewardship success looks like are called for.
3. Voting – Voting rights are sometimes under-utilised and at times there appears to be reticence to vote differently to company management recommendations.
4. Collaboration – Inter-manager collaboration is limited, but stewardship is an area where collaboration, not competition, is often in the interests of end savers.
5. Leadership – There is room for stronger leadership. For example, proactively setting out the standards expected of companies.

Via these levers, Willis Towers Watson calls for 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.

Stephen Miles, Senior Director, Head of Equities, Willis Towers Watson, said: “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.”

Re-disseminated by The Asian Banker