We live in a world of vast economic inequality and shareholders have a variety of tools at their disposal to help address it.
Yet, too often, those delegated the responsibility to exercise these rights on the underlying shareholders' behalf - asset managers - do not use the tools effectively.
Ownership of a stock confers important rights. Among them are the right to select the company's leadership, approve major transactions, choose the auditor and vote on senior executive pay.
These decisions can have a major impact not only on a company's ability to deliver long-term value, but also on its ability to help mitigate inequality.
Consequently, ownership of a stock also bestows the responsibility to exercise these rights with due care and consideration.
Against a backdrop of rising anger over inequality, one might think executive pay packages would be regularly thrown out. In fact, the results suggest a different story.
Take J.P. Morgan CEO Jamie Dimon, who is championing a broader stakeholder approach. His pay in 2018 was $31m, and shareholders approved this, with 72% voting in favour.
Since becoming CEO in 2005, he has taken home an astonishing $330m.
Soaring compensation for executives
The CEO-to-typical worker ratio in the US in 2018 was 278-to-1, up from 20-to-1 in 1965 and 58-to-1 in 1989.
Between 1978 and 2018, CEO compensation increased by 1,008%, far outpacing the 707% rise for the S&P 500. The average US worker salary grew by a paltry 12%.
One reason for the growing divide is that there is no real market pressure on CEO pay. Far too often, asset managers just vote with management or, in some cases, do not vote at all.
In 2018/19, the overall percentage of votes against remuneration proposals was a mere 6% for FTSE 100 companies and 9% for S&P 500 companies.
Given popular consciousness around income inequality, the average investor might be surprised to find out that their asset manager has voted in support of some of these pay packages.
Investors need to be more critical
When asset managers vote in favour of remuneration packages that reinforce economic inequality, are they keeping the benefits of customers, employees, suppliers and communities in mind?
And, ultimately, is this in the interests of the underlying shareholder, given the critical importance of economic stability for long-term growth and earnings?
Asset managers need to think harder about executive pay, and vote against packages that are excessive and poorly structured.
In the 2018 proxy season alone, we voted against 48% of remuneration proposals, including at J.P. Morgan.
We recognise the value Dimon has brought to J.P. Morgan, but we do not believe it justifies the level of pay given.
Where we have had cause to vote against a company's remuneration report over two or more consecutive years without seeing improvements, we typically also vote against the re-election of the remuneration committee chair.
A key part of holding the board to account is holding individual directors accountable for their area of responsibility.
Societal impacts must also be considered
Voting against excessive remuneration is one way in which shareholders can help ensure executive pay does not exacerbate inequalities.
Active engagement with companies to ensure their business practices consider societal impacts is another.
Take the clothing industry, which typically sources from very poor countries. When thinking about supply chains, it is important to understand how employees all along the chain are treated.
We have ongoing engagement with AB Foods, the owner of Primark, to understand and gain assurances of their progress in this area.
Another area of focus for us has been issues relating to the opioid crisis. Last year we engaged with AmerisourceBergen, a large US pharmaceutical distribution company, on its role in the crisis.
Despite gaining some comfort it was taking steps to allay any concerns over its behaviour, we ultimately decided to sell our holdings in the company due to ongoing uncertainty.
Asset managers must be held to account
Asset managers often have a powerful voice when it comes to company engagement, but can also build networks through joining industry collaborations to amplify overall impact.
In the end, rising inequality is a systemic problem that demands a broad-based policy response. Governments naturally take the lead, but asset managers can play a contributory role.
Ultimately, we all have an interest in promoting a stable society as this underpins sustainable economic growth.
The collective failure of asset owners and managers to properly monitor and hold executives to account is a major weakness with capital markets.
When it comes to inequality, investors have an important role to play.
Asset managers provide a critical link in the ownership chain and have a responsibility to implement votes and company oversight in a way that aligns with underlying shareholder interests.
Executives will only be held to account when asset managers are.
Therese Kieve is a stewardship analyst at Sarasin & Partners