The top 3 global asset managers—BlackRock, Vanguard and State Street Global Advisors—have recently announced their updated proxy voting guidelines for 2022 that reflect the current corporate environment and economic trends.  The guidelines are noteworthy considering the significant stakes held by those asset managers in Korean listed companies and also the material impact that the guidelines will have on the decision making of other institutional investors and proxy advisory firms in connection with exercising voting rights at annual general meetings of shareholders.

In his 2022 letter to CEOs (link), BlackRock CEO Larry Fink stated that stakeholder capitalism is all about delivering long-term, durable returns for shareholders, highlighting that the transparency around corporate planning for the era of decarbonization (“Net Zero”) is an important element in delivering such returns.

BlackRock’s 2022 proxy voting guidelines for US securities (link) discuss the following key points, among others:

• Companies are encouraged to have at least two directors on the board who identify as female and at least one who identifies as a member of an underrepresented group, and they should disclose how diversity is considered in board composition, including sufficient information on the individual candidates (board diversity).

• Companies should continue to make disclosures in accordance with the framework developed by the Task Force on Climate-related Financial Disclosures (“TCFD”) and disclose business plans for transition to Net Zero, among other things (climate risk).  

Consistent with global standards, BlackRock’s 2022 proxy voting guidelines for Korean companies (link) provide that if any large listed company subject to the requirement for mandatory appointment of female directors (as per Article 165-20 of the Financial Investment Services and Capital Markets Act) fails to comply with such requirement, BlackRock may vote against the re-election of director(s) deemed responsible for such failure.  The guidelines also present standards for disclosure that are consistent with global standards, such as requiring reporting under the framework of TCFD and business plans for transition to Net Zero.
 
Vanguard’s 2022 proxy voting policy for US portfolio companies (link) includes the following key updates:

• Companies should disclose strategies for board composition and policies to secure board diversity, and if the company’s board is making insufficient progress in its diversity composition or addressing its board diversity disclosures, Vanguard will generally vote against the nominating and/or governance committee chair (board diversity).

• In case of failure to perform adequate climate risk oversight, Vanguard will consider voting against the appointment of any director or committee member accountable for the governance or material risk oversight failure (climate risk).

• Vanguard will consider supporting proposals to hold virtual shareholder meetings if shareholders’ rights are not unreasonably curtailed (e.g., meeting procedures and requirements are disclosed ahead of a meeting; a formal process for shareholders to submit their questions to the board is in place; real-time video footage is available; and shareholders can call into the meeting or send a recorded message) (virtual shareholder meetings).

State Street Global Advisors (SSGA)’s proxy voting guidelines for 2022 (link 1, link 2) discuss the following key points:

• If a company does not disclose the racial and ethnic composition of its board or fails to have at least one director from an underrepresented racial or ethnic community on its board, SSGA will vote against the chair of the nominating committee.  If a company fails to have at least one female board member, SSGA may vote against the chair of the nominating committee (board diversity).

• Companies should continue to make disclosures under the framework of TCFD.  SSGA may vote against the independent board leader of companies in the S&P 500 that fail to provide sufficient disclosure in accordance with the TCFD framework (climate risk).

Among the various governance and ESG issues, “securing board diversity” and “addressing climate risks” are highlighted as key areas in the updated proxy voting guidelines of the top 3 global asset managers.  And consistent with this trend, securing board diversity and managing climate risks have also been key emerging issues in Korea (for example, the amended Financial Investment Services and Capital Markets Act requiring mandatory appointment of female directors takes effect on August 5, 2022, as covered in our earlier newsletter).  In light of this current environment, companies would be well advised to prepare for addressing the above issues in connection with the 2022 annual general meetings of shareholders. 

[Korean version]