One of the world's largest asset management houses described how it has been willing to give the "thumbs down" to more corporate boardoom pay proposals, and wield its power to influence diversity and climate change positions. It speaks to a continuing trend. Now the question will be: what's the financial benefit in the medium term?

BNP Paribas Asset Management, which at the end of March oversaw €641 billion ($702.3 billion) of assets under management and advisory, has increasingly flexed its investor muscle over boardroom decisions in this year’s annual meeting season, particularly on remuneration and diversity.

The French firm said that it had an “average opposition rate across all resolutions” of 37 per cent, up from 33 per cent in 2022’s season of annual general meetings.

The asset manager rejected more than half (55 per cent) of executive compensation resolutions – showing how boardroom pay remains a hotly contested area. 

"In the first half of the year, BNPP AM voted at more than 1,600 AGMs worldwide. Voting is an important component of our dialogue with the companies in which we invest on behalf of our clients, as well as being an integral part of our investment management processes,” Michael Herskovich, head of voting and governance at BNP Paribas Asset Management, said. “This is why it is essential to maintain this high point of shareholder democracy, where dialogue is established between managers, individual shareholders and institutional investors. We advocate hybrid AGMs, with the same rights for those who vote remotely and in person.”

The figures coincide with stock and bond markets having been hit by higher interest rates and inflation, and at a time when firms want to use their economic power to improve boardroom performance, meet goals such as hiring more women for boardrooms and leadership roles, cut fossil fuel investments, change supply chains, and meet other objectives.

This news service has asked BNP Paribas AM if it has specific data on whether its voting in AGMs and other forums actually benefits investors with superior performance. We may update this story in due course.

A report by the Financial Reporting Council, the London Business School, and SQW, entitled Board Diversity and Effectiveness in FTSE 350 Companies, said that FTSE 350 boards with well-managed gender diversity contribute to higher stock returns and are less likely to experience shareholder dissent. (Shareholder performance is measured by EBITDA margin.)

This trend of voting on pay, diversity, and ESG-related matters should not necessarily be conflated with shareholder activism because this can include voting to throw out boards, break businesses up into more – supposedly more profitable parts – restructure, or dispense more dividends to shareholders. According to a report by Goldman Sachs in May this year, shareholder activists produced “mixed results.” “An equal-weighted portfolio of all activist targets since 2006 has generated an average annual excess return relative to the Russell 3000 of 3 percentage points,” the report, said.

Compensation, diversity and climate
“Although compensation practices have become more transparent and the integration of ESG performance criteria is increasingly widespread, BNPP AM nevertheless continued to see variable remuneration being paid without performance requirements, along with an excessive catch-up effect compared to 2022, which was marked by declining remuneration due to the impacts of the pandemic,” it said. “Executive compensation plans should be aligned with long-term corporate performance and include relevant and demanding extra-financial objectives.”

The firm said that it also threw out 48 per cent of director appointment resolutions, mostly for “diversity reasons.” In 2022, the figure was 36 per cent.

Earlier this year, BNPP AM changed its voting policy by increasing the minimum thresholds required for female board membership to 35 per cent in Europe and North America, and to 20 per cent in Latin America, Asia, and the Middle East. By its policy, BNPP AM opposed the election of all-male directors when these requirements were not met, leading to a significant increase in opposition to such resolutions, it said.

On climate resolutions, BNP Paribas AM said it rejected 53 per cent of them, but it gave “broad support” for environmental and social resolutions.

The number of climate resolutions initiated by corporates fell sharply, with BNPP AM voting on 19 in 2023, compared with 40 in 2022.  This decrease in the number of “Say on Climate” resolutions is attributable to many factors. Several companies have opted for a vote every three years – a practice limited to selected European markets, primarily France and the UK.