Proxy season 2023 is coming up, which means investors are getting ready to exercise their rights as shareholders and vote on important business decisions. But before the annual general meetings of 2023 really kick off, let’s take a look back at last year and pick out some of the trends we saw in proxy season 2022. That way, we might have a better idea of what to expect in 2023.
Here are some of the highlights from last year’s proxy season:
There was a record number of shareholder proposals in 2022
If your favorite part of proxy season is voting on shareholder proposals, 2022 was your year. Last year broke records in not only the number of shareholder proposals that were submitted to public companies, but also the number of proposals that made it to the ballot and were voted on.
According to a PricewaterhouseCoopers study, there were 555 shareholder proposals among Russell 3000 companies that were voted on — a 25% increase compared to the previous year.
The study says that this is the result of two factors. One, a 17% increase in the number of shareholder proposals that were submitted to these companies. And two, a 40% decrease in no-action requests granted by the SEC (these requests allow companies to drop certain shareholder proposals from their proxy statements).
With this record number of proposals being voted on, a record number of proposals also received the majority of votes.
Lots of these proposals centered around ESG issues
In this record year of shareholder proposals, there were plenty that were related to ESG. Proxy Preview Project found 607 instances of shareholder resolutions related to ESG topics in the first half of 2022, which it said was a 22% increase from the year before.
This uptick came despite the fact that a 2020 SEC rule made it relatively harder to file and refile shareholder proposals.
"The attempt to silence shareholder voices has, instead, prompted them to get louder," Andrew Behar, CEO of As You Sow, wrote in the Proxy Preview report. "This uprising is occurring while investors and fiduciaries increasingly understand that systemic risk affects all players in the capital markets, inspiring leading companies onto the path of serving all stakeholders."
Some of the top ESG issues were: DEI, climate change, and political spending
While governance issues remained a popular topic for shareholder proposals, there number of shareholder proposals surrounding environmental and social issues almost doubled among Russell 3000 companies, according to the PwC study mentioned before.
However, the study points out that only 41 of the 288 E and S related proposals received the majority of votes. This is a slight uptick from the 36 proposals that got the majority of votes in 2021, but still represents a decline in the percentage of proposals reaching the majority benchmark.
The study found that the number of environment-related proposals doubled compared to the year before. These proposals included topics like measuring direct emissions, climate risk management, measuring indirect emissions, and implementing sustainable packaging. Proposals that dealt with direct emissions like greenhouse gas emissions and net-zero targets were more likely to pass (7 out of 14 did) than proposals that dealt with indirect emissions
The study also found that shareholder proposals asking for racial equity audits were surprisingly popular, with average support going from 33% in 2021 to 45% in 2022. 8 out of 22 of these proposals passed with the majority of votes.
These environmental and social trends build off of what we’ve seen in the past few years. US SIF analyzed shareholder proposals spanning 2020 to 2022 and found that the issues that prompted the most proposals were: labor and equal employment opportunity (with 311 proposals), corporate political activity (with 288 proposals), and climate change (with 265 proposals).
Notable vote: Jack in the Box’s sustainable packaging
Speaking of breaking records, one especially notable vote came from the shareholders of Jack in the Box. Investor Green Century Funds put together a shareholder proposal asking Jack in the Box to speed up its sustainable packaging efforts, arguing that the company had fallen behind the sustainable packaging initiatives of other fast food companies.
What makes this vote notable is that it passed with 95% of the vote despite Jack in the Box recommending that shareholders vote against it. This is the largest margin that an environmental- or social-related proposal has passed with a company opposing it — showing that certain investors really care about environmental impact, and are willing to push companies that drag their feet on these issues.
Investors paying close attention to governance
Environmental and social issues were in the spotlight, but so was governance. According to EY, shareholders asked for more board oversight and disclosures when it came to ESG issues, and some companies responded by citing ESG in director qualifications.
EY also notes that despite the signals that activist investors would challenge more company-picked board nominations, the opposition only went up by a small percentage. The average vote against S&P 500 directors was 4.2% in 2022, which was only up a little bit compared to the 3.9% average in 2021.
Say on pay decline
One particularly interesting trend in governance is the decrease in support for company “say on pay” votes. If you look at previous proxy years, you’ll notice that in general, say on pay votes received overwhelming support. But that may be starting to chip away.
According to PwC, “Average support at companies in the S&P 500 and Russell 3000 hit record lows since the vote was introduced 11 years ago, at 87% and 90% respectively. In the S&P 500, 21 companies failed their say-on-pay vote, with 207 companies receiving below 70% support. The number of failed votes at Russell 3000 companies hit 71.”
While 70% may still seem like a high percentage of the vote, this represents a stark contrast when compared to before.
This trend is exemplified by the controversy surrounding Apple’s 2022 say on pay vote for its CEO Tim Cook. Last year, Institutional Shareholder Services (ISS), one of the largest proxy advisory firms, asked Apple investors to vote against Tim Cook’s compensation, saying there were issues with how his equity was awarded.
Apple’s say on pay vote still received a majority with 64% approval, but this was down from 95% in 2021. In response, Cook voluntarily cut his own salary by 40% at the start of 2023.
This is potentially a big deal, because if Tim Cook isn’t safe from say on pay opposition — the same Tim Cook that leads the largest US company by market cap, that grew his company’s share price by around 1,000% since becoming CEO in 2011 — this could have big implications for the compensation of other CEOs if their shareholders believe they are being unfairly paid.
It could be interesting to see how support for say on pay changes in 2023, or if it changes at all. But all of these trends from 2022 could be worth keeping an eye on in 2023. These trends could just be symptoms of what investors are thinking about during a specific year, or they could be hinting at a larger movement.
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The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Employing ESG strategies may not result in favorable investment performance. Securities offered through Fennel Financials, LLC. Member FINRA SIPC.
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