The 2020 proxy season has been unusual for many reasons, not least because hundreds of companies have switched to virtual AGMs as a result of the Covid-19 pandemic. Now, preliminary data suggests there has been a reversion against a trend noted by investors and governance professionals in recent years: what had been a growing number of shareholder proposals withdrawn as a result of successful negotiations with companies.
According to Georgeson, roughly 62 percent of all proposals submitted by shareholders will end up being voted on this proxy season, based on the assumption that all those outstanding as of June 4 will do so. That compares with 55 percent and 54 percent of proposals getting to a vote in the 2019 and 2018 seasons, respectively. Similarly, the proportion of proposals withdrawn has dropped from 20 percent in 2018 and 27 percent in 2019 to 14 percent this year up to June 4.
Hannah Orowitz, managing director with Georgeson, tells Corporate Secretary that these figures suggest there is less negotiation taking place between investors and companies and agrees that, if so, it would mark a change from the pattern seen in previous years.
Industry professionals have described the trend to negotiate away proposals as having been particularly noticeable in relation to environmental and social measures. As an example, Trillium Asset Management filed 13 workplace diversity proposals in 2018, 10 of which were ultimately withdrawn after the investor gained some form of commitment from the company involved.
‘In terms of governance proposals, a lot of [them] are filed by a couple of individuals and there’s not a whole lot in them to talk about,’ Jonas Kron, senior vice president and director of shareholder advocacy at Trillium Asset Management, told Corporate Secretary last year. ‘Either the company is going to [make the proposed change] or it’s not, so those tend to just go to a vote or are withdrawn. With the environmental and social issues there’s a lot more room for finding common ground and establishing ongoing dialogues.’
Another trend this season has been an apparent increase in support for separating the roles of board chair and CEO. According to Georgeson, investors’ backing of such proposals has risen from an average of 30.2 percent in 2019 to 34.8 percent as of June 4, 2020.
Orowitz says this shift may in part be the result of shareholders being concerned about the workload facing an individual who is both CEO and board chair in the midst of the pandemic and all the associated challenges. Those challenges may also have heightened investors’ appetite for strong, independent leadership at companies or may have heightened other governance-related concerns shareholders already had, she explains.
One area where there has been relatively little change this year is in strong levels of support for say-on-pay proposals, which as of June 4 averaged 90.74 percent. Georgeson notes, however, that 47 companies of roughly 2,500 Russell 3000 firms holding AGMs up to that date have failed to receive majority support, and 195 companies failed to reach at least 80 percent support. Glass Lewis states in its 2020 guidelines that ‘any time 20 percent or more of shareholders vote contrary to the recommendation of management, the board should, depending on the issue, demonstrate some level of responsiveness to address the concerns of shareholders.’
Orowitz notes that the say-on-pay arena may look markedly different next year amid growing investor scrutiny of executive compensation. That heightened focus has been sparked largely by the pandemic: how executives have performed when faced with pandemic-related difficulties and how they are compensated for that, particularly if a company has made widespread layoffs as a result of the crisis.