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How passive managers are changing governance in Asia

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  1. #1

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    How passive managers are changing governance in Asia

    Afraid this is a subscription publication, so will try and pick out some interesting paragraphs (I have the whole article in pdf).

    https://www.asianinvestor.net/articl...rnance-in-asia

    Giant index fund managers may be thought to sit on their hands when it comes to exerting shareholder influence, but the reality is different.

    "Asia's largest passive fund managers feel they are fighting against a
    perception that they don't do enough to engage with the companies they
    hold in their portfolios."

    "reflects the importance passive managers such
    Blackrock, Vanguard and State Street Global Advisors (SSGA) are placing on
    engagement.
    Between them, those three fund groups – the
    world’s biggest – manage $13.6 trillion of assets
    globally and about $1 trillion in Asia Pacific, much of
    it passively."

    Re Australian companies "Blackrock will engage with the chairman of a company directly. "Our focus is on governance and one of our priorities is around the structure of the board; looking at a good diverse skill set. Do we need an independent director with a background in that industry?""

    "In Asia, the shareholder structure is very different, with block shareholders
    and family estates dominating.
    "Getting access to the board is difficult, but increasingly we are getting
    there," Bennett said.
    "We use it as an opportunity for a broader discussion. To explain to them
    what passive investing is, because they don’t know that we are long term
    shareholders. Like the family, we can't sell out, so our interests are aligned.
    And that’s a wake-up call for families.""

    "The asset manager's preferred structure is an annual director-election
    process, which allows shareholders to hold individual directors
    accountable, as compared to a staggered board structure, where individual
    directors stand for elections periodically and, once elected, serve for
    multiple years before standing for re-election."

    Sith and HK_Katherine like this.

  2. #2

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    Original Post Deleted
    BUT, doesnt that defeat the purpose of active v/s passive management?

    At what point does this turn into a star trekish debate of not interfering with alien cultures and at what point does it turn into giving one company more advice over another?

    I understand the need to get involved in governance - but when you're passive indexing, you cannot not be involved. Goes deeper than the whole "we're family thing".

    So my question is - can and should the largest shareholders of a corporation by virtue of being passive indexers, get involved in the active governance and management of a company?

    DeletedUser - I don't follow the whole proxy voting rituals - but do they actually cast votes to change culture / governance / fix issues? If they stayed out of the votes, would the votes from the active investors be any different? I also understand, that in Asia perhaps elsewhere, the passive / shareholder votes don't really matter, as the companies tend to be family / state majority owned.

    Could be wrong, but I don't see why and how passive managers could influence a vote, except in one situation - they are using the institutional stick which carries the weight of active funds that they manage.

  3. #3

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    Interesting. Always went with the assumption that they would not attempt to disrupt the status quo.

    If I owned an all world stock ETF, where would I get their record and where would I be able to voice my opinion? I know some active funds poll their shareholders in Australia.. but am unaware of passive index funds doing this.

    Wonder what would happen if Vanguard and Blackrock disagreed on a vote.

    Did find an old article about a vote in Exxon, which I figure should be a big one for index weighted funds.

    https://www.cnbc.com/2017/05/31/inde...on-report.html

    p.s. Still think they should not be voting, as I am unclear how they would represent their shareholders opinions.


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  6. #6

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    @pin - Worth a read... if nothing else for this technicality ...

    Here, for example, is a specific wrinkle in the Unilever case. Are BlackRock’s UK tracker funds allowed to vote differently from BlackRock funds that track the Eurostoxx 500 index? It’s a fair question because the end-investors may well have different views: if the resolution passes, one set of investors won’t own any Unilever shares while the other will own more. BlackRock normally imposes a global house view on all its funds but “carve outs” are technically allowed. Will the carve-out clause apply at Unilever? BlackRock won’t even volunteer that information.
    https://www.theguardian.com/business...what-you-think

  7. #7

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    Spotted on some random article about MSCI excluding companies that had issues with voting rights/share ownership.

    BlackRock Inc, the world's largest fund manager and a top MSCI client, in April said securities regulators, not index providers, should set international standards for shareholder voting rights. It said MSCI's proposal could distort markets.
    Last edited by shri; 31-10-2018 at 08:54 AM.