Hermes has broken with in-house convention and spoken out against Schroders’ “exceptional” breach of corporate governance principle in promoting former chief executive Michael Dobson to the role of chairman.
It is also voting against the senior independent director who led the chair succession process, Lord Howard of Penrith.
“It’s very rare for us to go out in public and declare how we vote,” Hans-Christoph Hirt, executive director at Hermes EOS, told Fund Strategy. “We thought it was such an exceptional principle here that is being breached we decided to go out and explain our voting decision.”
A statement issued by Hermes confirmed the asset manager had engaged with Schroders in the lead up to the vote, taking place today at the group’s AGM. Hirt would not provide further detail about the engagement in order not to breach the privacy of the discussions.
An academic paper published out of Cass Business School and Toulouse Business School earlier this year found mutual funds were almost 50 per cent more likely to oppose management of firms in other sectors compared to the financial services sector.
The study, published in Management Science, examined 14,554 votes cast by 108 mutual funds between 2004 and 2013.
The authors hypothesised that social ties led mutual funds to vote more leniently for their industry peers and also that they may fear retaliation for their votes.
Hirt agrees that it could be more difficult for fund managers to take a tough position when it came to their peers but argued it was important for the industry to abide by its own standards.
“If we as the fund managers go to companies that are not in the financial sector and advocate good corporate governance then it’s also very important that we in the industry uphold these principles,” he says.
In the past, Schroders has been outspoken against similar moves at other companies and, in the wake of Dobson’s proposed appointment, has been accused of hypocrisy as a result.
Notably, in 2008 fund manager Richard Buxton, who has since moved to Old Mutual Global Investors, publicly criticised the move of Mark & Spencer’s Stuart Rose to chairman from chief executive.
Buxton has said the appointment of Dobson was “sending governance back 20 years”.
A statement issued by Royal London Asset Management’s corporate governance manager Ashley Hamilton Claxton ahead of today’s vote stated Dobson’s appointment was inappropriate and a violation of the corporate governance code.
“We apply the same governance standards to all companies, regardless of sector,” Hamilton Claxton says.
A significant 47 per cent shareholding by the Schroders family, who support Dobson’s appointment, means the resolution is likely to pass.
“What we will need to do is to see after the AGM how the independent shareholders have voted and judge the outcome on that basis,” Hirt says.
Hermes announced it was supportive of the appointment of Peter Harrison as chief executive.
Today’s meeting follows Schroders release this morning of its quarterly results whereby it revealed inflows had almost halved year-on-year to £2.7bn.