Here are 10 bullets you can tell your senior management team and board based on lessons learned about shareholder proposals from this proxy season (hat tip to Proxy Analytics’ Steve Pantina for his help with these):
- Alive and well – Shareholder proposals reached the highest number – 983 – since 2015. Two factors were the growth in anti-ESG proposals and the resurfacing of majority vote proposals. However, note that the average support level for a shareholder proposal fell to its lowest level in years, 22.9%. (Here is a client alert recapping what happened during this proxy season for life science and tech companies.)
- Transparency matters – Much ink has been spilled over the decline in support for E&S proposals – and the decline in the number of E&S proposals overall. That is largely attributable to better disclosure about ESG matters by many companies and not necessarily a reflection of a change in investor interest in the topic – borne out by the fact that E&S is still a hot topic during shareholder engagement.
- Hot is hot – The new hot topic is AI. There were four types of these shareholder proposals this season – and one type (i.e., risks presented by gen AI misinformation) garnered over 40% in support levels. That is quite high for a new type of proposal.
- Governance remains hot – Longtime proponent John Chevedden and his colleagues submitted an increased number of governance-related shareholder proposals (e.g., supermajority voting) and those continue to receive majority support.
- Director commitments in the crosshairs – Director commitments are near the top in investor interest these days. In response to investor demands a few decades ago, many companies implemented hard caps on how many boards a director could serve on. Director overboarding policies have changed over the years as investor demands softened – except for at some smaller companies – but investors still ask companies how they will manage director commitments in the absence of a hard cap.
- Things can turn on a dime – Not surprising given a strong stock market and no major changes in proxy advisor methodologies this year that say-on-pay failures – and say-on-pay, red-zone votes – were way down. Note though that some of the companies experiencing a failure had a high level of say-on-pay support the year before. This can happen if a company finds its comp program falling into a yellow zone and pulled for greater scrutiny. Once scrutinized, things can go downhill in a flash.
- New types of activism – Year Two of universal proxy saw interesting developments, including an expensive proxy fight, an annual meeting with three sets of proxy cards mailed and a proponent able to submit a total of five shareholder proposals to a single company. Expect the strangeness to continue as activists figure out the boundaries of universal proxy world.
- Activists and proponents continue to advance their agenda outside the scope of the SEC’s rules – Not only are shareholder proponents using the exempt solicitation process to promote their position, third parties continued the trend from last year of filing exempt solicitation materials to provide their views on positions taken in shareholder proposals. Or even beyond what the shareholder proposals seek.
- Support for anti-ESG proposals was minimal – Even though the number of anti-ESG shareholder proposals rose to a record 107, no anti-ESG proposal received greater than 10% support.
- Will larger shareholders become proponents? – The day may come when a sizable investor decides to get into the business of submitting shareholder proposals on a wide-scale basis. That day has not yet come. But it could happen someday.
Some larger investors are getting more involved in promoting the campaigns of others. And there certainly is more coordination among larger investors in a variety of ways than there used to be.
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