{"id":182076,"date":"2022-11-09T15:00:00","date_gmt":"2022-11-09T20:00:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/traders-insight\/the-role-of-long-term-shareholder-voice\/"},"modified":"2023-04-05T11:17:57","modified_gmt":"2023-04-05T15:17:57","slug":"the-role-of-long-term-shareholder-voice","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/region\/the-role-of-long-term-shareholder-voice\/","title":{"rendered":"The Role of Long-Term Shareholder Voice"},"content":{"rendered":"\n

By: Benjamin Colton and Ryan Nowicki<\/strong><\/p>\n\n\n\n

Bridging the time-horizon gap to create long-term value.<\/strong><\/p>\n\n\n\n

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  1. As a long-term investor, representing quasi-permanent capital for companies held in our clients\u2019 index portfolios, we are uniquely positioned and incentivized to encourage portfolio companies to consider long-term risks and opportunities in order to maximize long-term value for our clients.<\/li>\n\n\n\n
  2. With many portfolio companies improving their shareholder engagement practices and approach to long-term financially material issues, our support for incumbent directors in contested elections has steadily increased over the last five years, reaching a new high in 2022.<\/li>\n\n\n\n
  3. Some activist shareholders, companies, and policymakers are engaging in and\/or proposing activities that can circumvent shareholder voice; such measures could result in capital markets characterized by a focus on short-termism, amplifying the influence of certain investors and stakeholders, often with limited investment time horizons.<\/li>\n\n\n\n
  4. Boards and management teams that focus on managing material risks and emerging opportunities can maximize value for both companies and their diverse shareholder bases, thereby bridging the gap between short and long-term interests.<\/li>\n<\/ol>\n\n\n\n

    Introduction: A Critical Juncture for Shareholders<\/h2>\n\n\n\n

    Faced with inflationary pressures, geopolitical uncertainty, and market volatility, companies\u2019 commitment to an elevated culture of shareholder engagement has never been more critical. Coupled with these headwinds are the introduction of a universal proxy card and a shifting legislative environment. These developments have the potential to significantly alter the landscape of shareholder activism.<\/p>\n\n\n\n

    The universal proxy card (see below) presents a meaningful shift in how investors participate in shareholder democracy, as well as how companies and activist shareholders approach contested elections. In parallel with this development, new measures are currently being considered by policymakers, which intend to further empower individual investors. While we are supportive of the spirit and intent of these proposals to democratize the voice of shareholders, without thoughtful implementation these measures may result in unintended consequences for investors and companies alike.<\/p>\n\n\n\n

    At the same time, a short-term focus is being demonstrated by company actions, activist shareholder settlements, and legislative proposals, each of which has the potential to silence the long-term shareholder voice. Against this backdrop, the importance of considering long-term perspectives in these discussions has never been more important.<\/p>\n\n\n\n

    Our Role as a Long-term Investor amidst Diverse Shareholder Views<\/h2>\n\n\n\n

    We appreciate that different investors have a broad spectrum of investment philosophes, risk appetites, and time horizons. We respect this diversity and value building relationships with our portfolio companies given our mutual objective of achieving long-term, risk-adjusted returns for our clients, who are the underlying shareholders in these companies. As a long-term investor, particularly in our index portfolios where we own a company for the duration of its inclusion in the index, we are a stabilizing force for our portfolio companies. We are uniquely positioned and incentivized to use our stewardship tools to encourage portfolio companies to consider long-term risks and opportunities, in an effort to create long-term value for our clients 1<\/sup>.<\/p>\n\n\n\n

    By providing cost-effective and efficient vehicles to achieve diversification, our index products have increased access to financial markets for all investors \u2013 from individual workers saving for retirement to the world\u2019s most sophisticated institutional investors.<\/p>\n\n\n\n

    State Street Global Advisors\u2019 Asset Stewardship team aims to address all financially material issues \u2013 including environmental, social, and governance (“ESG”) issues \u2013 through our proxy voting and company engagement, thereby promoting the reduction of risk in our clients\u2019 investments. In pursuing this mission, we have long recognized that activist shareholders can bring positive change to underperforming companies2<\/sup>, particularly when boards or management do not respond to investor concerns. However, we are wary of activist shareholder models of engagement that favor short-term gains at the expense of long-term investor interests.<\/p>\n\n\n\n

    Our Approach to Engaging with Activist Shareholders and Nominee Candidates<\/h2>\n\n\n\n

    We have a broad history of constructive engagement with management and boards of our portfolio companies, as well as with the activist shareholders who challenge them. This has occurred through dialogue and\/or proxy contests. In recent years, we have increasingly witnessed activist shareholders dive deeper into emerging areas of company performance and board oversight, including financially material ESG issues3<\/sup>. As a result, board candidates increasingly offer multidisciplinary expertise in addition to direct industry experience4<\/sup>.<\/p>\n\n\n\n

    Activist shareholders, often with short-term time horizons, would be well served to focus on bridging the gap between short and long-term interests. By demonstrating a compelling case for how their proposed strategy and director nominees are superior to the incumbent\u2019s approach to value creation, activist shareholders could increase their base of support among voting shareholders. A focus on this approach is particularly relevant in today\u2019s market environment marked by volatility and uncertainty, in which activist shareholders may be incentivized to drive their agendas and advocate for change.5<\/sup><\/p>\n\n\n\n

    Despite a renewed focus on director quality by activist shareholders, our support for incumbent directors in proxy contests has increased year-over-year since 2017, reaching a new high in 2022 as seen in Figure 1.6<\/sup><\/p>\n\n\n\n

    This increase in support can be attributed to:<\/p>\n\n\n\n