Proxy Voting: The hallmark of active ownership

Institutional investors owned less than 8% of US public equities by market capitalisation in the 1950s; this figure had grown to nearer 67% in the past decade. 

Jul 18, 2017 | Bonnie Saynay and Dr Henning Stein

Institutional investors owned less than 8% of US public equities by market capitalisation in the 1950s; this figure had grown to nearer 67% in the past decade1. The market capitalisation of listed companies has also increased enormously, rising in the US alone from $94 billion in 1950 to more than $25 trillion at the end of January 20172.

Such concentration of company ownership among institutional investors is by no means unique to the US. It is common around much of the world. It gives a relatively small number of organisations enormous power in terms of helping to shape corporate practices and behaviour for the greater good.

One of the most significant ways in which this power can be used positively is in relation to responsible investing (RI) and active ownership. Institutional investors with longterm horizons and high-quality, high-conviction strategies are especially well placed to unlock value through a philosophy of responsible investment.

It is through proxy voting that institutional investors are often best able to make their voices heard. Active investors may bring private pressure to bear on companies through engagement and dialogue but voting at the annual general meeting (AGM) can represent the most transparent manifestation of an institution’s commitment to active responsible investing. Only the threat to divest is more powerful (and for passive portfolio managers, who are forced by their mandate to hold all of the stocks in an index, the proxy vote may be the ultimate sanction).

Speech by Luis Aguilar, Commissioner, US Securities and Exchange Commission, April 19 2013.
2 Seeking Alpha, January 27 2017: ‘US stock market tops $25 trillion – up $1.9 trillion since election’.

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