Morningstar - Summer 2019 - 30

Dispatches

Engagement and
Proxy Voting

other two funds in the report, Pax Ellevate Global
Women's Leadership PXWEX and Glenmede
Women in Leadership GWILX, voted in favor of all
of the gender- and diversity-related shareholder
resolutions they faced.

In early April, Madison Sargis and Jackie Cook
released "Gender and Diversity Funds:
Intentional or Not?" Using Morningstar's Fund
Votes database, the study measured how
three funds that emphasize women in leadership
and gender diversity actually voted on related
shareholder resolutions. Morningstar's Jon Hale
explored their findings in his Medium blog
"The ESG Advisor." His views may not reflect those
of Morningstar Research Services.
Our Morningstar report on gender- and diversityrelated shareholder resolutions generated a
lot of media attention. Most of it was focused on
State Street Global Advisors, the world's
third-largest asset manager and sponsor of the
SPDR SSGA Gender Diversity Index ETF SHE.
SSGA made a big splash on International Women's
Day in 2017 when it unveiled the Fearless
2002statue and had 2005
2008Street's
Girl
it placed opposite Wall
Charging Bull statue to call on companies to
address gender pay equity and the lack of women
in executive leadership and on corporate boards.
But it turns out that when it came to voting on
gender- and diversity-related shareholder
proposals over the past two years, State Street
only supported two out of 10. By contrast, the

S&P 500

It's easy to accuse SSGA of hypocrisy for marketing
SHE with the claim that it "seeks to help
address gender inequality in corporate America by
offering investors an opportunity to create
change with capital and seek a return on gender
Average % Women
diversity," and then failing to support shareholder
20
resolutions that are pretty clearly designed
to "create change with capital."
15.6
But before we close the case, it's important to 15
understand SSGA's place in the shareholder
engagement ecosystem and the positive role it
10
plays in engagement. SSGA has $2.5 trillion
in assets under management, about 80% of which
is in passive strategies. As a result, SSGA is
a major and permanent shareholder of virtually 5
every listed company in the world. That gives
the firm leverage when it engages with a company0
2011 a corporate policy
2014or practice.2017
about
At the very
least, a company is going to pick up the phone or
take the meeting when SSGA comes calling.
In fact, SSGA reports that it has engaged with
a large number of companies over board diversity
concerns and voted against 581 companies'
nominating committee chairs in 2018 where boards
failed to add a female director. The problem with

Average % Women

Ex S&P 500

23.7

25
20

13.6

15
10
5
0

2002

2005

Source: Morningstar. Data as of 12/31/2017.

30
26

2008

2011

2014

2017

claims of engagement is that they are hard to
verify when asset managers are unwilling to name
the names of the firms with whom they've
engaged. Why should that be such a big secret?
Well, it's no longer a big secret for SSGA, which
now lists the names of every company it has
engaged with in expansive quarterly and annual
reports. Kudos to SSGA for doing so.
But the case for engagement having been made,
I still have a problem with the reluctance on
the part of SSGA and other large asset managers
to support shareholder resolutions. Their
view that resolutions should only be supported
as a last resort after engagement has failed
can undermine the message that could otherwise
be sent through a resolution that's more
widely supported.
Impax Asset Management, which runs the Pax
Ellevate fund, and Glenmede Investment
Management, are much smaller firms, each with
around $14 billion in AUM. Impax is a dedicated
sustainable investment firm, while Glenmede
is not. In fact, while votes cast on behalf
of Glenmede's Women in Leadership fund were
in favor of gender- and diversity-related
shareholder proposals, those cast on behalf of
most of its other funds were not nearly
as supportive.
Impax supported these resolutions firmwide and
also engages with companies more broadly on

Smaller-Cap Company Boards Have
Smaller Percentages of Women
However, small-cap company boards are just
reaching the level of gender diversity
that S&P 500 companies were at a decade ago.
Progress has been slow, but change may
be swift. By 2021, public companies headquartered
in California must have at least two women
on the board if there are five directors, and three
women if there are six or more.

Morningstar - Summer 2019

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