Excluding ETFs and index funds, which often remain neutral or vote with their proxy, the majority of active institutional holders favour Suncor’s bid for Canadian Oil Sands (COS), according to a Brendan Wood International poll.
The same share owners are highly critical of the board and management of COS, assigning them the lowest performance scores on the Brendan Wood 1,400-name Index. This ranking has been attributed to COS for several years.
Last week, many significant shareholders openly questioned the very raison d’être of the COS board, which is largely viewed as redundant by active institutional shareholders in the poll. Institutions mentioned the COS board would likely be released in the event that Suncor’s offer is accepted.
However, the majority of COS stock is held by retail investors who have only just begun to be polled. The institutional poll will be further updated along with retail results in the days ahead.
What about the index fund votes?
“Neutrality or complacent voting amongst indexers, not just in this situation but across the board, is a potentially serious weakener of value,” says Brendan Wood. Some index funds in the COS/Suncor poll reported an automatic “vote for the slate” policy.
“Management is the driving force behind the efficiency, security and performance of a company,” says Wood. “Index funds are a very powerful voting force in the market. Neutrality, the voting policy often hinged to the algorithmic approach of the indexer, can unfortunately lead to blind votes for slates. [That activity] can complacently perpetuate some of the poorest performing managements on the index.”
The Brendan Wood data encourages the active use of votes by index funds, especially in situations where management and the board conspicuously underperform. “Good management [teams] may not need index support, but poorly performing management [teams] can be upheld by inequitable index votes, thus extending their tenure, at the potential expense of all share owners. Index votes cast thoughtfully instead of abstained or automatically cast for proxy can greatly help to enhance accountability and value throughout the index,” notes Wood.