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State Street Corp. is putting pressure on U.S.-listed companies that don’t meet its expectations for board accountability, shareholder rights, and other aspects of corporate governance.
The world’s third-largest asset manager wants to talk with 66 companies in the S&P 500 index that it says don’t adhere closely enough to a set of good governance principles it laid out with other investors last year. Companies that fail to explain why they don’t align with the principles could see votes against directors starting this month, State Street said.
The Boston-based firm came up with 13 criteria for measuring how companies stack up against the governance principles, which are backed by asset owners and managers with more than $22 trillion invested in the U.S. Almost 200 companies meet all of the criteria, according to State Street. The 66 companies it’s targeting fail to meet three or more of them.
Rakhi Kumar, who leads State Street’s environmental, social, and governance investment strategy, said the 13 criteria aren’t being revealed in full so that it doesn’t turn into a “check-the-box” exercise.
“What we’re trying to do is give companies the ability to look at the principles and then provide explanations as to how their governance structures align with the principles,” Kumar told Bloomberg Law. Those that don’t align completely will get a chance to explain why their governance structure is right for them, she said.
The most common way companies could fail State Street’s governance test is by not letting investors put their own candidates for board seats on the corporate ballot. About two-thirds of S&P 500 companies allow this kind of proxy access, according to data from Ernst & Young LLP’s Center for Board Matters. Kumar said State Street wants to know why the rest of the index hasn’t followed suit.
Other areas where companies fall short include not holding director elections each year and letting boards get stale as some directors stay in their seats for more years than the U.S. average. State Street has been telling boards since 2014 to refresh their membership.
The asset manager also began pressing all-male boards to add women to their ranks when it installed a Fearless Girl statue across from Wall Street’s Charging Bull last year. About 150 of the more than 400 companies it targeted have added at least one female director since then. Getting the rest of the boards to bring on women will remain a priority in the year ahead, Kumar said.
Also on State Street’s radar are companies such as Snap Inc. that keep control after going public by giving ordinary shareholders little to no voting power. State Street will continue to push companies to give up such structures in favor of the “one share, one vote” standard included in the governance principles.
“But by and large, this tends to be one of the most challenging areas to find common ground with companies,” Kumar said.
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