2023 Proxy Season Review

In the 2023 proxy season, the number of shareholder proposals soared to a record high: Shareholders filed 836 proposals in the Russell 3000 compared to 801 during the same timeframe in 2022 and 792 in 2021, reveals a report by The Conference Board.

At the same time, average support for shareholder proposals dropped from 31% in 2022 to 23% in 2023, falling in every category: governance, executive compensation, environmental, social, and human capital management (HCM). The decline reflected major institutional investors taking a more case-by-case approach to shareholder proposals; companies having stepped up their ESG efforts and disclosures; and a decline in the quality of many shareholder proposals that are unrelated to the company’s business or overly prescriptive.

“Despite the decline in support for shareholder proposals in the 2023 proxy season, companies must prepare for more politically motivated proposals next year as the country heads into federal elections. Proponents will likely submit proposals on hot-button social and environmental topics, even if they are unlikely to receive broad support,” said Merel Spierings, author of the report and Senior Researcher at The Conference Board Governance & Sustainability Center.

In addition to recapping the highlights of the 2023 proxy season, The Conference Board report provides guidance on how companies can approach offseason engagement with investors and prepare for the 2024 proxy season.

“Companies should highlight their governance of the issues addressed in shareholder proposals. While major institutional investors are less inclined to support shareholder proposals to ‘send a message’ to companies, they nonetheless want to be sure the board is paying attention to the risks and opportunities associated with ESG topics,” said Paul Washington, Executive Director of The Conference Board Governance & Sustainability Center.

The report was produced in collaboration with ESGAUGE, along with Russell Reynolds Associates, and the Rutgers Center for Corporate Law and Governance. Findings are based on 1) a comprehensive review of shareholder proposals submitted at Russell 3000 companies between January 1, 2023, and June 30, 2023, and 2) a Chatham House Rule discussion with leading governance professionals.

Additional findings and insights include:

Shareholder Proposals: Overall

The sharpest rise in volume was in the area of environmental and social (E&S) policy.

• E&S proposals soared: 513 proposals were filed on E&S topics compared to 466 E&S proposals in the 2022 proxy season—the sharpest rise of all areas.
• But had the highest withdrawal levels among all areas: 31% of E&S proposals were withdrawn, indicating that proponents still were more willing to negotiate with companies on these topics than in the areas of governance (4%) and executive compensation (also 4%).

Governance Proposals

Governance proposals continued to gain higher levels of support than any other area.

• Governance proposals received the most support: They received 29% average support in 2023, while social proposals received 17% and environmental proposals received 20%.
• But fewer governance proposals passed: 16 governance proposals passed in 2023 compared to 31 in 2023.

Executive Compensation Proposals

Executive compensation proposals increased significantly, but average support dropped.

• Proposals soared: 40 proposals were filed in 2022 compared to 70 proposals in 2023.
• But average support fell: 32% in 2022 compared to 23% in 2023.
• Often came to a vote: After governance proposals, these proposals were most likely to come to a vote (84%) and least likely to be withdrawn (4%).

Environmental Proposals

Among all topics, environmental proposals saw the sharpest drop in average support. 

• Support for environmental proposals decreased significantly: 34% in 2022 compared to 20% in 2023, with a comparable decline in support for climate-related proposals (35% to 21%).
• Climate-related shareholder proposals continue to dominate environmental proposals: In 2023, 75% of environmental proposals focused on the climate compared to 73% in 2022.

“Reports of the death of ESG are greatly exaggerated.  Although support declined for climate-related proposals this year, certain proposals saw similar or greater levels of support this year, and we expect much of the same for 2024.  For example, proposals requesting a transition plan on how companies intend to align their activities with their GHG emission reduction targets received over 30 percent average support this year,” said Richard Fields, Head of the Board Effectiveness Practice at Russell Reynolds Associates.

Social Proposals

Social proposals grew considerably and came to a vote most frequently, compared to other E&S areas.

• Social proposals soared: 177 proposals were filed in 2022 compared to 232 in 2023.
• More proposals were voted on compared to other E&S areas: 66% of social proposals came to a vote in 2023, compared to 54% of environmental proposals and 58% of human capital management proposals.
• Support declined modestly: 22% in 2022 compared to 17% in 2023. The five-percentage point decline in average support for this category was the smallest, compared to any other area.

“Data from the 2023 proxy season suggests that the system is working well overall. True, shareholder support decreased for the second year in a row, but this means shareholders, especially institutional investors, can discern proposals and support the good ones. This is certainly a positive,” said Matteo Gatti, Professor of Law at Rutgers Law School and affiliated with the Rutgers Center for Corporate Law and Governance.

Human Capital Management Proposals

Average support for racial equity and/or civil rights audits dropped dramatically.

• Average support for racial equity and/or civil rights audits plummeted: 33% in 2022 to 14% in 2023. This may reflect that investors find the benefits of these proposals to be limited.

Proposals by Anti-ESG Proponents

Shareholder proposals from anti-ESG groups increased but continued to perform poorly.

• Proposals from anti-ESG groups grew sharply: 54 proposals were filed in 2022 compared to 92 in 2023.
• But support plummeted: 9% in 2022 compared to 5% in 2023.

“Companies should expect anti-ESG groups’ efforts to be even more carefully orchestrated and sophisticated next year. These groups are well-funded and often work together. In fact, speaking with one of them means speaking with all of them, as oral and written communications even from lower-level employees may become public and quoted verbatim,” said Umesh Chandra, Executive Director of ESGAUGE.