While the world grapples with how COVID-19 is affecting their lives and the markets, companies and shareholders are also grappling with the repercussions of this global crisis. The proxy voting season is looking quite different in the face of this pandemic, remarkably forcing compromise and an end to tensions where possible. As the Wall Street Journal puts it, “being a shareholder activist is not a great look right now,” in light of more pressing concerns around keeping companies afloat and workers employed.
Shift in Tone
This relaxation of tensions is in stark contrast to the trends we were seeing in shareholder engagement leading up to the pandemic. Specifically, investors witnessed an aggressive call to arms from massive asset managers that put many companies on the defensive: Goldman Sachs announced it would vote against corporate boards without any women, according to FundFire, while BlackRock announced its commitment to being more transparent around proxy voting and discussions with companies. Now, enforced social distancing is shifting Annual General Meetings to a virtual discussion. Critics of virtual sessions claim that remote meetings might stifle productive dissent, insulating companies from uncomfortable interactions and inevitably making conversations around climate change and diversity and inclusion more difficult. The WSJ reports that some companies are seeking standstill agreements with shareholder advocates as well as settlements they might not have agreed to pre-settlement.
Roundup of 2020 Proxy Voting Season Trends
With the changing dynamics as a backdrop, Glenmede’s Sustainable and Impact Investing team has rounded up key trends to look for the in 2020 proxy voting season, ongoing now through May.
1. Shareholder proposal volume continues to decline
This likely is due to shareholders continuing to pursue alternative means of effecting change from private engagement with companies. According to the CFA Institute, private engagement still remains the tool of choice for enacting corporate changes related to ESG. And, as a recent Cerulli survey reports, the vast majority of asset managers are voting proxies while over 75% are engaging directly in dialogue with management:
Source: “Clients Demand and Engagement Activities Push for Environmental, Social, and Governance Investing.” The Cerulli Edge. 3Q 2019, Issue #27.
2. Companies should prepare to address the groundswell of support for environment and social initiatives, including from mainstream investors
Though once fringe, traditional shareholders are increasingly considering participating in social and environmental proposals – ranging from political contribution disclosure to compliance with human rights in the supply chain to adoption of climate change policies. While shareholder proposals still tend to fail, data shows a slow but steady upward trend in terms of voting support. Moreover, in the context of market volatility, the role that companies play in protecting their workers may further cement support for social proposals. Notably, abstention levels have dropped markedly in just a few years.
3. Companies should especially be prepared to disclose their gender pay practices
Amazon, American Express, Intel, and Facebook all received proposals requesting pay equity disclosure in 2019. While no proposals passed, several companies volunteered information on compensation policies and pledged to close pay gaps. In the most well-known example, Citibank disclosed that female employees were making, on average, 71% of the salary earned by male colleagues, pledging to increase representation of women and minorities in senior and higher-paying roles across the firm by 2021. Whether or not companies will face the same level of scrutiny during a proxy season overwhelmed by pandemic concerns, the Harvard Law School Forum on Corporate Governance still urges companies to gather internal data on this issue and to start drafting a plan to correct major incongruities.
For any further questions or comments, please write to SustainableandImpactInvesting@Glenmede.com.