Shareholder Rights at the Crossroads
Investors intend to step up efforts to hold asset managers to account in 2025, while also pushing back against DCSS and other limits.
Shareholder rights face a defining year after 2024 saw rising misalignment between institutional investors and asset managers, as well as growing regulatory constraints on the former’s influence.
Last year, both EU and UK policymakers looked to enhance growth and increase competitiveness with the US, but investors have levelled criticism at the means taken to achieve these objectives. They also expressed increased dissatisfaction over asset managers’ voting on ESG-related shareholder proposals.
Notwithstanding minor variations, the overall picture showed decreasing asset manager support for environmental proposals and backing for social proposals flattening, with just governance proposals seeing a rise in support. There were also moves to muffle the investor’s voice.
“2024 should be a wake-up call: shareholder rights are under attack,” Jen Sisson, CEO of the investor-led International Corporate Governance Network (ICGN), tells ESG Investor. “This threatens the foundations of our system [and] we are likely to see further attempts to dilute shareholder rights in 2025.”
ESG has become increasingly politicised in recent years and asset managers, particularly those US-based, have been the subject of heighten scrutiny from Republican lawmakers, leading some to change their stance on ESG issues to the chagrin of some shareholders. This pressure is likely to become even more pronounced in 2025 following the re-election of Donald Trump.
Last month, asset owner members of the US$4 trillion AUM Interfaith Center on Corporate Responsibility (ICCR) wrote to asset managers BlackRock, State Street, T. Rowe Price and Vanguard, questioning their “marked drop” in support for ESG-linked shareholder proposals.
“Asset owners are becoming increasingly concerned about asset manager’s proxy voting on ESG shareholder proposals and many are taking action,” ICCR noted.
They’re also defending their right to be heard.
“2024 was a bad year for shareholder rights,” says Caroline Escott, Senior Investment Officer at UK pension scheme Railpen. “We saw the UK dilute its shareholder protections as a result of its listings rules, and there have some movements in the EU and US, so one of the things that we will try to do in 2025 is encourage companies to recognise the importance of shareholder rights and investor protections.
“For 2025 one of our priority focuses is trying to encourage companies not to follow policymakers in the governance race to the bottom,” she adds. “Investors are getting increasingly agitated at what they are seeing on the shareholder rights landscape.”
The task of maintaining investor influence is not for the faint-hearted or the inexperienced. Will Martindale, Co-founder of UK-based consultancy Canbury Insights, says asset owners must invest in senior stewardship and portfolio management professionals that “know companies well and can be part of constructive dialogue on companies’ risks and opportunities”.
Chasing transparency
Political pressure on major asset managers has led to an evolution in the range of stewardship and voting options offered to both institutional investors and retail shareholders. These have not been universally welcomed, in part due to perceived weakening of the influence of internal sustainability and stewardship teams.
But in a broader sense increased visibility could be one of the positive stories of 2025.
In recent years, asset owners have repeatedly called for transparency and accountability from asset managers over their proxy voting activities. The UK’s Financial Conduct Authority (FCA) launched the Vote Reporting Group in 2022 to examine obstacles to information flows between asset managers to asset owners on how voting rights are exercised.
The group, which is co-chaired by Escott and Scottish Widows’ Investment Stewardship Lead Shipra Gupta, is due to confirm next steps in the spring, including an agreed vote reporting template.
The Pensions and Lifetime Savings Association (PLSA) will take ownership of the template, in collaboration with the FCA and the group, phasing out its own template by early 2026.
“The new vote reporting group template will provide publicly accessible and comparable votes and disclosures that will highlight voting practices and asset managers,” says George Dollner, Policy Lead at the PLSA. “Our hope is that greater transparency will improve stewardship, bringing benefits to investee companies and hopefully the wider economy through high quality engagement and market discipline.”
However, Karoline Herms, Director of Investment Stewardship at Legal & General Investment Management (LGIM), says clear communication is also needed from asset owners, to lend legitimacy to asset managers’ efforts to hold companies to account.
“It’s important that asset owners speak up, because we, as asset manager, are often caught between a rock and a hard place,” she says. “The company says that you’re too ‘advanced’ or ‘pushy’, while asset owners say you’re not pushing hard enough. Companies and regulators need to hear the voice of asset owners’ voice is so important, because it’s ultimately their money.”
DCSS damage
As asset owners and managers continue to reset their relationship in 2025, policymakers are looking to remove apparent barriers to prosperity, especially in markets overshadowed by the US and China.
Last year, the FCA overhauled its listing rules to boost growth and innovation on UK stock markets, in what it described as the “biggest changes to the listing regime in over three decades”. This change was made amid pressure to ramp-up support for the country’s economic growth and international competitiveness, alongside adjustments to the Corporate Governance and Stewardship Codes.
These changes were met with a mixed response from industry, with particular concerns raised over a more relaxed approach to dual class share structures (DCSS) to complete for listings business with the US.
The FCA removed a time-limiting ‘sunset clause’ for DCSS, which grant owners superior voting rights disproportionate to their shareholding, despite admitting their potential to weaken management discipline.
“Throughout the process we’ve been vocal about things we have not been convinced are in the best interest of savers, including the removal of sunset clauses for DCSS,” says Dollner. “It is a concern that risks reducing shareholder rights.”
Seven UK pension schemes led by Railpen wrote to the FCA voicing their concerns, as did the ICGN. Investors worth US4 trillion have also campaigned globally against DCSS via the Investor Coalition for Equal Votes (ICEV).
The group intends this year to encourage pre-initial public offering (IPO) companies to list with one share, one vote structures or DCSS with a sunset clause of seven years or less. Last year, ICEV also engaged with EU, UK, and US policymakers to try to discourage the rolling back of equal voting rights.
“We’ve supported the one share, one vote principle for decades, because it’s very difficult for us to police a company if we don’t have an equal voting right to the economic investment that we’ve made for those rights,” says Herms at LGIM, an ICEV member.
The listing rules are widely regarded as an attempt by the UK to align more with the US to increase listings on the London Stock Exchange. This appears to have backfired, however, with 2024 the worst year for departures from the exchange since the 2008 financial crisis.
“The news that the UK listings rules have not resulted in more UK IPOs is not a surprise to us or to any investor,” says Escott, Co-chair of ICEV. “The UK had had a very useful differentiator in its previous levels of high corporate governance standards and investor protections, which have unfortunately been diluted by the UK listings rules.”
Rising risks
DCSS have become more common in recent years, mostly among fast-growing firms in the technology, media and entertainment sectors.
LGIM Senior Global ESG Manager Jeanette Andrews describes the use of DCSS by IPO companies in the US as “significant”, with it weakening the impact of the manager’s votes. “It’s really important in the US market to vote against chairs of companies who have unequal voting rights in place,” she adds.
But the increased use of DCSS isn’t the only way in which rules are being changed in ways that erode shareholder rights.
In October, the EU formally adopted the Multiple Vote Share Structures Directive, which was criticised by institutional investor network Shareholders for Change for its negative impact on investor influence.
During the last year, several European countries have introduced DCSS, including Germany in December 2023 and Italy in March 2024, which lack a mandatory time-based sunset clause demanded by investors.
In November, ICGN warned that DCSS and behind-closed doors AGMs risk endangering small and minority shareholders’ ability to engage with investee companies in a letter to European Commission President Ursula von der Leyen.
The network called for the introduction of safeguards for DCSS, set of including minimum mandatory safeguards in all EU member states and a mandatory time-based sunset clause of seven years or less, warning that unequal voting rights can weaken the voice and influence of minority shareholders.
“In a bid to stave off the flow of listings to the US, the UK and Europe are weakening listing rules, diluting voting power, and embracing risky DCSS,” says ICGN’s Sisson. “It’s not clear that this will actually boost listings, but it clearly injects unnecessary risk. It’s really disappointing.”
There are also fears that under a second Trump presidency the US Securities and Exchange Commission (SEC) could make it easier for companies to exclude shareholder proposals, following the nomination of shareholder rights and ESG critic Paul Atkins as chair.
Timothy Smith, Senior Policy Advisor at ICCR, warns that while not all companies like shareholder resolutions, their absence risks making relations between firms and shareholders more confrontational.
“There will be continued attempts to challenge shareholder rights, and there’ll be an expanded defence from investors to protect our rights,” he adds.
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