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Nov 30, 2022

Governance in 2023: Value(s) added

How corporate values on issues such as reproductive rights and executive compensation are set to feature prominently in 2023

Large US companies continue to face pressure to take public positions on a range of political and social issues such as reproductive rights and racial equity. Some of those that have done so may think twice about doing so again after feeling the hot breath of pushback from lawmakers or the internet. 

But investors and shareholder advocacy groups won’t face such impediments in the coming proxy season and are expected to push companies on their values. 

In the wake of the US Supreme Court overturning Roe vs Wade, some companies made declarations of support for employees’ reproductive rights, saying they would cover the costs of seeking healthcare outside of their home states, if necessary. 

Edward Greene, Georgeson
Edward Greene, Georgeson

These announcements received both acclaim and criticism in the political arena. Some companies have also felt the weight of investor expectations in the governance arena – and more are predicted to do so.

For example, a month after a leak of the court’s draft ruling that suggested it would strike down Roe, almost a third – a level of support widely regarded as significant – of votes cast at The TJX Companies’ AGM were in favor of a proposal requesting that TJ Maxx’s parent company release a report ‘detailing any known and any potential risks and costs to the company caused by enacted or proposed state policies severely restricting reproductive rights, and detailing any strategies beyond litigation and legal compliance that the company may deploy to minimize or mitigate these risks.’ 

Trillium Asset Management, which filed the proposal in late 2021, wrote in its supporting statement: ‘Should [Roe] be weakened or overturned, as is widely anticipated, TJX employees will face challenges accessing abortion care… Employers as well as employees bear the cost of restricted access to reproductive healthcare.’ 

Following the vote, Trillium chief advocacy officer Jonas Kron said in a statement: ‘This significantly high vote is evidence that many investors are concerned about the impact the Supreme Court’s decision will have on businesses and the people who work at these businesses.’ TJX’s board had urged shareholders to vote against the proposal. The company did not respond to a request for comment at the time. 

Governance professionals expect shareholder proposals to be filed this coming proxy season on both sides of the abortion rights debate. Edward Greene, managing director at Georgeson, predicts there will be a lot of post-Roe proposals relating to human capital management and employee benefits.

June Hu, an attorney with Sullivan & Cromwell, notes that some shareholder groups based on religious organizations that support action on issues such as climate change may not align with pro-ESG groups in this area. 

Anti-ESG signs

Another reason companies may find themselves in the crosshairs on this and other values-based issues is the recent spike in anti-ESG shareholder proposals in the social and environmental spaces. Research from Georgeson finds twice as many proposal submissions that were critical of the ESG landscape in 2022 (52) as in 2021 (26). In many cases, these anti-ESG proposals appear at face value to be similar to pro-ESG resolutions, but their supporting statements reveal very different intents. 

Those conservative proposals didn’t gain much traction – according to Georgeson they secured an average support of 9.5 percent – but observers, including Greene, expect them to continue to appear in 2023. As a result, governance professionals say it is time for companies to identify more proponents in their proxy statements so investors can better understand their perspectives. 

Danielle Fugere, As You Sow
Danielle Fugere, As You Sow

Companies need to educate themselves and shareholders about people submitting proposals, Hu says, noting that more proposals are being filed by individuals on behalf of groups. She says that faced with proposals on a sensitive topic such as reproductive rights, companies should consider what’s right for their constituents, not just shareholders. 

She also notes that companies have for some time been willing to negotiate with proponents to potentially withdraw their resolutions, particularly on sensitive social matters, but proponents are less willing to settle following a change at the SEC. The agency’s division of corporation finance in fall 2021 updated guidance on its process for deciding whether to give no-action relief under Rule 14a-8 for companies that wish to exclude a proposal from their proxy statements.

This was seen as making it less likely that the SEC would grant such relief and as a result mean that a larger number and array of ESG proposals would get onto proxy statements – something that is generally accepted as having come true. The shift is also generally seen as allowing proponents to get more granular and more prescriptive resolutions to votes at AGMs that in turn can face more opposition from investors.

This is an extract of an article that was published in the Winter 2022 issue of IR Magazine. Click here to read the full article.

Ben Maiden

Ben Maiden is the editor-at-large of Corporate Secretary , an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter , covering regulatory and compliance...
Editor-at-large, Corporate Secretary