Insights from Proxy Season 2018
Proxy season or the annual meetings of America’s listed companies reflect wider trends across the board. Intense rhetoric this year focused on a diverse range of topics but consistently addressed a rise in shareholder activism in regard to environmental and gender diversity issues. This season saw shareholder proposals focus more on shareholder rights than ever before.
This proxy season, like in recent years reflects a change to the number of shareholder proposals relating to social and policy issues instead of corporate governance. According to statistics from the Institutional Shareholder Services (ISS), nine out ten proposals related to environmental or social issues which include greater transparency about political contributions and lobbying disclosures, reports on climate change and sustainability as well as the gender pay gap. Harvard Law School’s forum on corporate governance proposed that two reasons may explain this shift;
(1) Social and environmental issues are “gaining significant traction with investors and the public” as they dominate current affairs and
(2) Governance topics “may be lower on the agenda for the target universe” at large companies who have already finetuned “formerly-contested” governance issues.
Our top three take away points highlight the rising influence of corporate social responsibility, board refreshment and diversity.
1: Gender Diversity
Investors, in the quake of 2018’s disclosures about pay inequality, shifted the spotlight for more accountability about gender diversity in the boardroom. EY, in their 2018 Proxy Review have signalled two key changes that advanced gender diversity proposals this year:
- Many companies share the goal of inviting more women to join the boardroom and accelerate change
- Growing numbers of investors are rejecting boards who do not reflect diversity
Data from consultancy and services firm, Spencer Stuart, in the U.S. champions this shifting focus, as 33% of all new directors appointed to S&P companies in 2017 were women, up from 27% in 2017. They counsel boards that diversify their boards with new-generation directors “can have a lasting, positive impact on the board’s effectiveness during a time of unprecedented change”.
2: Climate Change
Shareholder proposals concerning the environment continue to rise and 2018 was no exception. Proposals included climate risk, coal-related risks, greenhouse gas emissions and sustainability reporting.
Sullivan & Cromwell LLP in their analysis of 2018’s proxy season noted that as in previous proxy season the vast majority of environmental, social and political proposals failed. However majority support for environmental proposals doubled in 2018, up from 3% (or less) over the past decade.
3: CEO Pay Ratio Disclosure
2018 ushered in mandatory CEO pay ratio disclosures which compare the total salary of the CEO to the salary of a median employee.
Sizeable revolts over corporate pay have been seen so far this year in pharmaceutical firm AstraZeneca, AECOM, Shell and the Walt Disney Company. Expert analysis indicated that key concerns over CEO pay were related to poor performance indicators and the awarding of high pay and bonuses.
However, investors have remained undeterred in focusing on pay-for-performance and data from ISS Analytics have cited that in 2018 CEO’s across every market capitalization range have seen a rise of 9.3% in their salaries. Also, a notable trend was the awarding of astronomical pay-outs to CEO’s, for example, Telsa’s Elon Musk could receive a $56 billion award if he aids the company to reach a market cap of $650 billion.
It is conclusive from this year’s proxy season that while the majority of proxy proposals focused on shareholder rights and executives publicly welcomed proxy activism, only 12% of proposals passed, down 15% from 2017.
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