Ascertain Client Voting Preferences

Resolution Text

RESOLVED: Northern Trust (“NTRS,” or “Company”) shareholders request our Company prepare a report on the reputational and financial risks to the Company of misalignment between proxy votes it casts on behalf of clients and its client’s values and preferences, as well as strategies for addressing such misalignments on important issues. The requested report shall be available to stockholders and investors by October 1, 2024, prepared at reasonable cost and omitting proprietary information.

SUPPORTING STATEMENT:

Controversy over proxy voting – especially over environmental, social, and governance (“ESG”) proposals – is regularly reported on, debated, and enshrined in state law.1

Much debate centers on intermediaries, such as NTRS, and their role in casting votes on behalf of clients and beneficial owners. Every vote opens NTRS to controversy, either for failing to adhere to ESG principles or being too “woke.”

The issue has made its way to the highest levels of government. A proposed bill would require asset managers like NTRS to pass votes through to investors under certain conditions.2 President Biden’s first veto was about consideration of ESG factors in retirement plans.3

The landscape has clearly shifted: NTRS can no longer execute votes in the best interests of clients (and avoid controversy) without first soliciting their preferences4 on important social and environmental topics and determining if they are subject to legal mandates related to proxy voting. Similarly, NTRS’ stated one-size-fits-all approach of maximizing shareholder value5 is at odds with many clients’ interests in maximizing portfolio-wide returns by pursuing voting strategies designed to push certain companies to address social and environmental externalities.

Votes are now filed in machine-readable format, which makes it easier for clients to identify votes misaligned with their preferences.6 Reliance on proxy advisors may invite further scrutiny.7

Our Company offers extensive portfolio customization, but not customized proxy voting, a core advisor responsibility subject to fiduciary duties.8 In its commingled funds, NTRS does not currently offer investors any voting choices.

Criticism of BlackRock, Vanguard, and State Street9 led them to adopt programs providing voting choices. However, these programs are denounced as limited and false choices due to overreliance on traditional proxy advisors.10 New technologies can address the challenge of tailoring proxy voting on important issues such as climate change, diversity, executive pay, and political expenditures to the unique preferences and values of each investor.11

Investors want a voice. Approximately 83% of investors, irrespective of age, life stage, or ideological bent, want managers to consider their preferences when voting on environmental issues.12

Financial services companies that fail to engage clients on important voting preferences will be subject to ever-increasing legal and reputational jeopardy.

Vote to Ascertain Beneficial Owner Voting Preferences – Proposal [4*]

1 https://corpgov.law.harvard.edu/2023/03/11/esg-battlegrounds-how-the-states-are-shaping-the-regulatory- landscape-in-the-u-s/ 

2 https://www.sullivan.senate.gov/newsroom/press-releases/sullivan-introduces-index-act-to-empower-investors-and- neutralize-wall-streets-biggest-investment-firms 

3 https://www.nbcnews.com/politics/white-house/biden-issues-first-veto-congress-blocks-new-investment-rule- rcna72997

4 https://ssrn.com/abstract=4360428 5 https://www.northerntrust.com/united-states/what-we-do/investment-management/sustainable-investing/proxy- voting-and-engagement

6 https://www.sec.gov/news/press-release/2022-198

7 https://www.texasattorneygeneral.gov/sites/default/files/images/press/Utah%20%26%20Texas%20Letter%20to%20G lass%20Lewis%20%26%20ISS%20FINAL.pdf, https://www.wsj.com/articles/blackrocks-false-voting-choice-proxy- esg-ballots-iss-glass-lewis-66652357?mod=opinion_lead_pos1

8 See 14 CFR 275.206(4)-6 and accompanying staff bulletins.

9 https://ssrn.com/abstract=4580206 

10 https://www.wsj.com/articles/blackrocks-false-voting-choice-proxy-esg-ballots-iss-glass-lewis-66652357

11 https://ssrn.com/abstract=4360428 

12 https://www.gsb.stanford.edu/sites/default/files/publication/pdfs/survey-investors-retirement-savings-esg.pdf