June 18, 2015
Value of Proxy Voting: A Pension Fund’s “Proxy Contest” Analysis
Here’s an excerpt of this blog by “The Activist Investor”:
Especially around this time of the year, portfolio managers sometimes wonder about the impact of all this proxy stuff. Reading proxy materials, meeting with companies and investors, paying for and reviewing ISS and Glass Lewis reports, researching and tracking votes – does it make a difference?
One investor set out to understand this question. The Florida State Board of Administration (SBA) manages $185 billion of pension funds and other state investments. It has long advocated for good corp gov as a leading member of the Council of Institutional Investors. It helped found the Shareholder Rights Project, and supports the Boardroom Accountability Project. Among pension funds, it also has a sophisticated strategy and organization. It has dedicated research, direct equity investment, and alternative investment units. It also allocates funds to activist investors such as Starboard Value. While it supports and votes for activist investors, it does not initiate or lead proxy contests.
Like other large pension funds that must vote every single proxy, its Investment Programs and Governance (IPG) group researches, tracks, and votes on thousands of proxy statements each year. With a typically small staff, IPG retains proxy advisor ISS for proxy vote research support and administration. IPG sought to understand the impact that its work has on the SBA portfolio. The result, Valuing the Vote, shows how proxy research and voting can improve investment returns. We worked with SBA on designing the research, compiling the needed data, and executing the analyses.
We helped SBA put together a sample of 107 proxy contests for SBA portfolio companies from 2006-2014. FactSet provided data on proxy outcomes and financial performance, while ISS provided ISS voting records. We limited the sample to companies with a market cap of over $100 million at the time the proxy contest began, since IPG researches larger cap situations much more often than small cap ones. Overall, the analysis shows that for the sample, the aggregate value of the SBA investment increased $572 million in the five years following a portfolio company proxy contest. SBA had aggregate investment of $1.9 billion in these companies at the announcement of a proxy contest, so the portfolio return was approximately 25%. Returns depended critically on whether SBA supports investors or management, and whether investors or management prevail in the proxy contest. In proxy contests, SBA supported investors about two-thirds of the time. And, SBA supported the prevailing side (investor or management) about two-thirds of the time. Returns improved when SBA supported investors and investors prevailed, or when SBA supported management and management prevailed.
The report also features a cool data visualization that helps illustrate the key findings.