Environmental, Social & Governance Briefs

On Governance: 2019 Proxy Season was Huge for E&S Proposals

September 09, 2019

On Governance is a series of guest blog posts from corporate governance thought leaders. The series, which is curated by the Governance & Sustainability Center research team, is meant to serve to spark discussion on some of the most important corporate governance issues.

The 2019 proxy season, the majority of which finished up in June, can be summed up as such: environmental and social shareholder proposals have performed quite well… again. That was the consensus of panelists on the July 18, 2019, Governance Watch webcast (membership required) presented by The Conference Board Governance & Sustainability Center and the law firm Cleary Gottlieb Steen & Hamilton.

The webcast was moderated by Paul Washington, executive director of The Conference Board Governance & Sustainability Center, and included the following panelists: Cleary Gottlieb Steen & Hamilton’s Pamela Marcogliese, a partner, and Elizabeth Bieber, an associate; and Theresa Molloy, vice president of governance and shareholder services for Prudential Financial.

 Marcogliese and Bieber made the following observations about the proxy season: 

• For the third year in a row, environmental and social (E&S) proposals are most of all shareholder proposals filed (political spending resolutions have increased in advance of the 2020 presidential elections).
• Voluntary withdrawals of shareholder proposals have been increasing and in 2019 close to half of E&S proposals were withdrawn after engagement and agreement, a trend which continues from 2018 and was, in part, fueled by the federal government shutdown in early 2019 causing a backlog in no-action letters the SEC had to review.
• More shareholders are supporting E&S proposals than are casting abstention votes.

Additionally, the panelists pointed out that opposition to director elections continued to rise. 

A central theme of the webcast was that the interest in E&S issues in many company proxies this year was reflective of the transformation of shareholder engagement. “People used to say there was a proxy season and an off-season,” Bieber said during the webcast. “Now, they say it’s proxy season and engagement season.” 

Maybe it’s more like, “It’s always engagement season now,” Washington chimed in. 

The Conference Board plans to publish its analysis of the 2019 proxy season later this fall in its annual Proxy Voting Analytics report. The study is based on voting results of 2,554 Russell 3000 annual general meetings (AGMs) that took place from January 1 to June 30, 2019. Here are preliminary figures from the analysis:

E&S proposals outnumbered governance proposals

The Conference Board analysis has so far focused on 227 E&S proposals filed by shareholders compared to 279 governance proposals. Key governance topics during this proxy season were CEO/chairman separation and (54 proposals) and the request to allow (or ease requirements to) act by written consent (36). Key environmental and social policy topics included political contributions disclosure (59 proposals) and environmental issues (26). 

Investors are narrowing the support gap between E&S and governance

As of June 30, 2019, the support level of proposals on board diversity rose to 29.7 percent from the 18.1 percent recorded in 2018. Those on political issues went up from 28 percent in 2018 to 33.6 percent this year.

“What drove the higher levels of support is that people are taking these issues more seriously,” Marcogliese said during the webcast. “There is a lot more people talking about E&S issues than in the past.”

She also is seeing a coalescence of support between various organizations regarding such E&S issues as sustainability reporting, climate change disclosure, and corporate political contribution disclosure.

E&S withdrawals at record levels, while governance withdrawals remain low

The latest figures show companies are more prone to engage with proponents of E&S proposals compared to a few years ago. At the same time, far fewer companies are willing to negotiate with proponents of governance-related shareholder proposals. (Only 1.4 percent of governance-related proposals were withdrawn, compared to 16.3 percent of E&S proposals.) It is worth noting that the number of governance shareholder proposals omitted by companies (47) is greater than the number of E&S proposals omitted (39).

“We saw a lot of withdrawals of E&S proposals because a lot of the proponents brought up these proposals as a way to have a conversation with the companies,” Marcogliese said. “They deeply care more about the issues more than the implementation of the proposals themselves, and they want to see progress.”

Opposition to director elections continues to rise

According to Institutional Shareholder Services, approximately 4.9 percent of directors elected between January and May 2019 received support of less than 80 percent in the form of “against” or “withhold” votes. That was up from 4 percent in the same period of 2018 and much higher than the historical low of 2.9 percent in 2015. The major factors in lower director support by investors, according to ISS, are board accountability, board diversity, board refreshment, and director overboarding.

The views presented on the ESG Blog are not the official views of The Conference Board or the Governance & Sustainability Center and are not necessarily endorsed by all members, sponsors, advisors, contributors, staff members, others associated with The Conference Board or the Governance & Sustainability Center.