Governance dominates corporate shareholder votes, ahead of environmental, social issues

Diversity, inclusion and workers’ rights are small share of votes

Led by Chairman Gary Gensler, the Securities and Exchange Commission has told companies it will allow more shareholder votes on public policy issues such as the environment and worker arbitration than it did during the Trump administration. (Bill Clark/CQ Roll Call file photo)
Led by Chairman Gary Gensler, the Securities and Exchange Commission has told companies it will allow more shareholder votes on public policy issues such as the environment and worker arbitration than it did during the Trump administration. (Bill Clark/CQ Roll Call file photo)
Posted May 19, 2022 at 7:00am

Governance proposals heavily dominate annual shareholder meetings despite activist investors’ concerns about material risks from environmental and social issues, according to an analysis from a financial think tank.

The number of proposals submitted globally at annual shareholder meetings increased by over 80 percent since 2012, to nearly 12,500 resolutions in 2021, according to data from Planet Tracker. Of the proposals submitted, governance issues such as executive compensation and shareholder rights accounted for 93 percent.

Planet Tracker investigates the risk of market failure related to environmental impact on oceans, food and land use, focusing on materials such as textiles and plastics. Those trends may shift in the U.S., where activist shareholders are garnering support and the Securities and Exchange Commission is encouraging more policy-focused shareholder proposals.

As it stands, however, social factors such as diversity and inclusion efforts and workers’ rights made up 5 percent of proposals submitted, and environment-related resolutions accounted for 2 percent. Governance’s dominance in proposals remained consistent throughout the decade, the report found.

“Following a significant number of environmental, social and governance proposals received by corporates in 2021, the ongoing pandemic and the inflow of funds into ESG strategies has helped increase the number of sustainability-related proposals by more than 20 percent this year,” the report said.

“However, if the past is a useful indicator of the future, then some of this optimism should be treated with caution," it said.

Planet Tracker is particularly concerned that certain issues are failing to make it onto meeting agendas. For example, in the past five years, plastic use and pollution have come up in eight proposals in the U.S., including twice at chemicals company DuPont de Nemours Inc.

“Planet Tracker welcomes the growing importance of ESG proposals at shareholder meetings. However, the ESG headline figures for these annual meetings over the past decade can deceive,” said John Willis, Planet Tracker’s director of research. “Hopefully, this year we will witness a new momentum on an assortment of ESG issues, not least on environmental topics, where many CEOs have made public statements on net zero targets.”

Proxy season underway

The findings come as the U.S. proxy season is underway, with the bulk of shareholder meetings taking place by the end of June. Major companies including The Home Depot Inc., AT&T Inc., Amazon.com Inc., Google parent Alphabet Inc., Caterpillar Inc. and Delta Air Lines Inc. will hold votes in the coming weeks on nonbinding resolutions related to ESG issues, from ramping up emission reduction targets to improving treatment of their workers.

Of the 548 resolutions that investors of Fortune 250 companies will vote on through the end of June, nearly two-thirds are related to governance issues, according to Proxy Monitor, an initiative run by the Manhattan Institute, a conservative think tank that tracks proxy votes. More than 200 proposals focus on social and environmental policies. 

Despite the governance emphasis, activist investors have some success with not only getting their environment and social proposals on the ballot but also passing them. 

Most recently, a proposal from shareholder advocacy group As You Sow to call on The Boeing Co. to align its full scope of greenhouse gas emissions with the Paris Agreement garnered 91 percent of votes cast. Johnson & Johnson shareholders passed a resolution from Mercy Investment Services to have the company conduct a third-party racial equity audit, with more than 62 percent of votes cast in support. 

“More and more investors are focused on ESG risks and demanding accountability on these issues by the board through swift, determined and strategic actions,” according to Stefanie Chalk, Dan Lambeth and Pru Bennett of advisory group Brunswick Group LLP.

“The days of management carrying on regardless are over,” they said in a memo. “Companies that cannot demonstrate how they have engaged on, committed to improving, or made real progress on ESG issues that are deemed critical to their industry’s license to operate should expect to come under fire during this [annual general meeting] season.”

Policy-oriented proposals are also getting a boost thanks to recent guidance from the SEC that’s bolstering activist ESG-focused investors’ chances to get companies more attuned to environmental and social issues.

Companies seeking to avoid shareholder votes on ESG issues face a higher burden to have the SEC grant their requests after the agency’s staff issued a legal bulletin on no-action requests under a provision known as Rule 14a-8, authorized by the Securities Exchange Act of 1934.

The agency, led by Gary Gensler, said it will be more likely to require companies to hold shareholder votes on public policy issues such as the environment and worker arbitration than it was during the Trump administration as part of its repeal of three legal bulletins issued from 2017 to 2019.

In March, Renee Jones, the director of the SEC’s Division of Corporation Finance, said agency staff would conclude that companies must give shareholders a vote on topics on social issues regardless of the issue’s significance to a particular company.

Under this practice, the agency will consider the broader social policy significance, displacing a prior focus on evaluating each social proposal’s significance to the company, Jones said. This will mean more uniform decisions on socially based proposals.

Jones said while SEC rules allow for the exclusion of proposals that micromanage the company, proposals can call for details on company activities, contain time frames for action or request particular methods without running afoul of the micromanagement restriction.

“We expect the level of detail included in a proposal to accord with what investors need to assess an issuer’s impacts, progress towards goals, risks or other strategic matters that are appropriate for shareholder input,” she said.

Peter Feltman contributed to this report.