Boardroom Governance with Evan Epstein

Donna Anderson, Head of Corporate Governance at T. Rowe Price: "This Has Been A Very Surprising Proxy Season"

Episode Summary

In this episode, I talk with Donna Anderson, the Head of Corporate Governance at T. Rowe Price (NASDAQ:TROW), a global investment management firm with ~$1.59 Trillion of AUM. Donna leads the policy-formation process for proxy voting, chairs the firm’s Proxy Committee and leads the firm’s engagement efforts with portfolio companies. She serves as a specialist for incorporating ESG considerations into the firm’s investment-research process. She is also a member of the firm’s Valuation Committee and the Women’s Roundtable Advisory Council. In this podcast, we talk about this proxy season, including issues connected to ESG, shareholder proposals and engagements, board diversity, private company governance, dual-class share structures, stakeholder capitalism, and more. If you like this show, please consider subscribing, leaving a review or sharing this podcast on social media. You can find all the show notes on the website boardroom-governance.com and please feel free to subscribe to the Boardroom Governance Newsletter at evanepstein.substack.com

Episode Notes

  1. Intro.
  2. (1:30) - Start of interview.
  3. (2:14) - Donna's "origin story": She grew up moving a lot since her dad was a Navy pilot. She attended Trinity University (started at 16). After college she worked as a newspaper reporter at a small daily in Washington State and then worked in the PR office for the State Department in Brussels. She later got an MBA at the University of Texas at Austin with the objective of becoming an investment analyst. After graduation she joined Dyer, Robertson & Lamme (’96-’98) in Houston as an equities analyst. She then joined Invesco (’98- ‘07) as director of equity research, including responsibility for voting the proxies. She joined T. Rowe Price (’07- Present) with a specialty in corporate governance.
  4. (6:34) - Her description of T. Rowe Price (NASDAQ:TROW), a global investment management firm with ~$1.59 Trillion of AUM. "This firm is virtually all active management (95%)." It's pure play asset management, deeply rooted in fundamental investment research. Corporate governance became more relevant around the time of the financial crisis (2007), so a decision was made to create a corporate governance specialty group.
  5. (10:42) -  How does T. Rowe Price think about its corporate governance function? "I think that our corporate governance approach is complementary to the passive investors." "We have a set of guidelines but nobody gets wedded to that, we approach each situation case-by-case." "This year brought so many exceptions, such as compensation during the pandemic." They look at every single vote. The proxy team is comprised of 3 people. They have a separate responsible investment team that covers ESG matters.
  6. (17:21) - On ESG and its impact on corporate governance: T. Rowe Price had 1,002 engagements with companies in 2020: 53% dealt with ESG matters. The job of the ESG folks is still centered around getting the information they need (disclosure of relevant data is still an issue with ESG). "We have a very disproportionately large footprint in small and mid cap companies, plus private companies, and they need a lot of coaching on ESG, DEI or corporate governance matters."
  7. (20:11) - On corporate governance of private companies (pre-IPO). We are early in the life-cycle of these companies so we can show them what are the corporate governance trade-offs (particularly from the shareholder side).
  8. (24:14) - Her take on dual-class share structures (enlightened by her role in the private investments valuation committee at T. Rowe Price). They plan to be long term investors, so they make sure that the companies that they have invested in understand the trade-offs involved in decisions such as having dual-class shares (for example, exclusions from S&P500 index if dual class shares don't expire). "It's reasonable to start with a classified board and graduate to an annually elected board later." On dual-class shares: "over time we have concluded based on years of experience that [the dual-class share structure] is not aligned with our interests... but...we are perfectly comfortable with a time-based sunset provision of 7 to 10 years." "This is a market where dual-class stock is accepted, so we think that a road-map idea and compromises like time-based sunset provisions are the right pragmatic solutions" "I think a lot of investors view that sunset provisions are the perfect compromise in this market, where there are not many alternatives."
  9. (29:39) - Her take on the current proxy season: "This was a very surprising year but I would not put [the Exxon proxy fight] on that bucket. Anyone that was surprised by that outcome was not playing close enough attention." "We don't see [the Exxon case] as a watershed event where investors will push E & S directors into boardrooms." "I think the conditions were very Exxon specific and that same fund with those same directors brought at any other company would have had a different outcome."
  10. (30:46) - On compensation issues in this proxy season. "We've been really surprised at how investors had their pitchforks out over companies that made comp changes in the heat of the moment in Q2 last year."
  11. (31:32) - On how some large shareholders flipped their views in favor of E&S shareholder proposals. "Those results were surprising to me and to a lot of companies."
  12. (32:31) - On the shareholder proposal process: "I think that shareholders have yet to reckon with the fact that the shareholder proposal process in this market has been taken over by non-shareholders [such as advocacy groups including E&S activist groups 'harnessing the power of shareholders' to foster social change]" "I think it's really questionable whether some of these activists actually want [companies such as] Amazon, Exxon, Chevron or Kroger to exist in 10 years." It's questionable whether these groups are aligned with shareholders interests.
  13. (34:04) - On companies arm twisting to bullying on vote outcomes this proxy season: "The Sunday night late calls that we've gotten, the votes put on hold for some time, this kind of thing is not allowed in other markets but it is allowed here. I thought this year they were particularly aggressive. I hope it's not a trend but I've been pretty alarmed by the lengths that the companies went through to engineer an outcome that is not real."
  14. (36:35) - On board diversity: "This is an area where the pace of progress is pretty surprising, and what it took to get there was shareholders coalescing around board diversity." T. Rowe Price wrote a letter to support the Nasdaq board diversity proposal. "Our take on board diversity is that [there must be a target], whether you want to call it a quota or not. If it's only aspirational guess what, the progress is very, very slow."
  15. (36:35) - On the Business Roundtable "purpose of the corporation" restatement (2019). "I don't put a lot of stock in it." See "The Illusory Promise of Stakeholder Capitalism" Bebchuk & Tallarita (2020). Also, if you talk to IR professionals, it's clear that shareholders are still a priority for companies.
  16. (43:58) - The books that have greatly influenced her life:
    1. Wuthering Heights (1847), by Emily Brontë.
    2. Seven Choices (2003), by Elizabeth Harper Neeld.
    3. Caste (2020), by Isabel Wilkerson.
  17. (45:47) - Her mentors:
    1. The editor at the newspaper where she worked post college that taught her how to write, in a week.
    2. Brian Rogers (former Chairman and CIO at T. Rowe Price).
  18. (47:21) - Her favorite quotes:
    1. "You can get so much farther with a kind word and a gun than with a kind word alone" by Al Capone.
    2. "A man who carries a cat by the tail learns something he can learn no other way" by Mark Twain.
  19. (48:08) - Her "unusual habit": searching weird rocks!
  20. (59:04) - The living person she most admires: "women crushing it in a male dominated field" (ie Angela Merkel, Oprah, etc.) but she's fascinated by Mellody Hobson, co-CEO and President of Ariel Investments.

Donna Anderson, the Head of Corporate Governance at T. Rowe Price (NASDAQ:TROW), a global investment management firm with ~$1.5 Trillion of AUM. Donna leads the policy-formation process for proxy voting, chairs the firm’s Proxy Committee and leads the firm’s engagement efforts with portfolio companies. She serves as a specialist for incorporating ESG considerations into the firm’s investment-research process. She is also a member of the firm’s Valuation Committee and the Women’s Roundtable Advisory Council.

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Music/Soundtrack (found via Free Music Archive): Seeing The Future by Dexter Britain is licensed under a Attribution-Noncommercial-Share Alike 3.0 United States License