Proxy season 2017: All about governance

Sep 22, 2017
Season characterized by ‘continued rise in governance activism’, according to latest ProxyPulse report

‘What were the big headlines in the 2017 proxy season?’, asks Broadridge in its latest ProxyPulse report, produced with PwC. ‘ESG issues like climate change and board diversity. Institutional investors took notice – and action.’

And companies should anticipate ESG issues remaining on the agenda into 2018, adds the firm, with the US withdrawal from the Paris Climate Accord only increasing the appetite for climate-related disclosure. 

The annual report, which looks back on the most recent US proxy season, analyzes 3,379 shareholder meetings held between January 1 and June 30, 2017. 

Share ownership and voting rates remained largely consistent with previous years, say the report authors, but what characterized the headlines generated by climate change and board diversity issues was the willingness of some of the largest institutional investors to not only air their views but also take action.

‘For example, State Street Global Advisors voted against the election of directors at 400 companies without a single female board member because they did not feel the companies were making significant progress diversifying their boards,’ note the ProxyPulse authors. ‘BlackRock, Vanguard and Fidelity voted for shareholder proposals related to climate change disclosure, which resulted in three such proposals receiving majority shareholder support for the first time.’

On the issue of board diversity, ProxyPulse notes that while the number of shareholder proposals for the season remains low at nine, on average, support for these was up at 27 percent with the number of abstentions dropping from 9 percent last year to just 3 percent in the current season. ‘Retail investors are much less likely to support proposals related to board diversity,’ notes the report. ‘While 31 percent of institutional shares supported such proposals, only 14 percent of retail shares voted in favor of board diversity initiatives.’

The issue will, however, continue to garner attention, warn the authors, with some shareholders citing board diversity as a ‘top engagement priority’. 

‘Shareholders want to understand how the board evaluates its composition,’ the report states. ‘They want clarity on board refreshment policies.’ As a result, some companies are providing ‘enhanced disclosure on how their board’s annual self-assessment process drives director succession planning,’ adds ProxyPulse. 

Other governance-related areas highlighted in the report include the ‘new normal’ of proxy access. What was a controversial issue only a few seasons ago has now seen more than 60 percent of the S&P 500 adopting bylaws for director nominations from shareholders. The 2017 season also saw multi-class share structures and unequal voting come under fire following the listing of Snap in March

Other highlights from the 2017 proxy season include an overall drop in shareholder proposals but an increase in support, continuing strong support for say on pay, a drop in the number of proxy contests – despite the ‘great deal of attention’ on shareholder activism this season – and an increase in the use of virtual AGMs. 

Finally, on the regulatory front, ProxyPulse also notes a shift in the SEC’s short-term priorities. The regulator’s fall agenda, released in July, two months after Jay Clayton was confirmed as SEC chairman, pointed to several unfinished items from Dodd-Frank, which are no longer being prioritized. ‘Notably, pay-for-performance disclosures, clawbacks, universal proxy ballots and enhanced board diversity disclosure rules are no longer on the commission’s short-term agenda,’ according to the report.

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