The 2022 proxy season is basically upon us but the momentum of 2021 ensures there will be no shortage of talking points.
Q2 2021 hedge fund letters, conferences and more
Our Proxy Voting Season Snapshot 2021, released earlier this week by Proxy Insight Online (but free to download by all Insightia readers, subscriber or not), distills some of the seismic changes that we saw last year.
Support For ESG Increases
Among these, ESG ranked most prominent. On average, support for environmental proposals from all institutional investors disclosing their voting increased by 4.2 percentage points. But for the five largest investors, the average increase was over 13 percentage points, led by BlackRock at nearly 38 percentage points and Vanguard on 24 percentage points.
Similarly, support for shareholder proposals on the hottest social topic of the past year, diversity and equal employment opportunity, were up by 30 percentage points.
If you've been following our coverage – or any ESG commentary over the past few months – you'll know how hot these topics have been and how keen most institutional investors have been to talk about them. You may not have known exactly how these investors voted at each company, although if you subscribe to Proxy Insight Online you now will.
Where your proxy solicitors will really earn their keep is on some of the more traditional resolutions. Three of the five largest investors were tougher on director elections and "say on pay" resolutions. Four of the five showed less alignment on director elections with proxy voting adviser Institutional Shareholder Services this year – the three passive investors below 90%.
The Growing Sophistication Of Proxy Voting
Voting against compensation or director resolutions has become a more complex affair, as investors incorporate board composition, sustainability metrics, and the impact of the pandemic which have affected a large number of companies, each in their own way. Since most investors have only recently begun incorporating more complicated considerations, it seems logical that their criteria will continue to evolve.
And for the activists and their ilk, the data on proxy contest support rates will be worth investigating. Vanguard, State Street, and JPMorgan supported more activist slates on the back of higher volume. BlackRock and Fidelity were tougher on dissidents.
As we go into policy update season, where investors communicate their intentions for 2022, the data for the 2021 season will highlight how the growing sophistication of proxy voting works in practice. Expect investors and issuers alike to pore over this data intently.
Josh Black, Editor-in-Chief, Insightia
Procter & Gamble Faces The Wrath Of Its ESG-Minded Investors
Concerns about the fate of individual directors in the path of the ESG juggernaut have been heightened after a director targeted by a group of environmental activists declined to stand for re-election.
Procter & Gamble Co (NYSE:PG) is the latest company to face the wrath of its ESG-minded investors, with a coalition urging shareholders to vote against the re-election of director Angela Braly, who has been deemed responsible for "human rights and environmental violations."
The campaign, announced August 26 by climate advocacy group Stand.Earth, expressed concern with the "environmental destruction" driven by the S&P 500 consumer goods company's supply chain practices, along with allegations of forced labor and land conflicts.
"P&G's operations continue to drive environmental destruction, land grabbing, and human rights violations in its supply chains from Canada to Indonesia," said shareholder activist James McRitchie, in a statement. "Alarmingly, its leadership has shown no sign of making these continued failings a priority. This is why members of P&G's board have to go."
P&G's lead director, Angela Braly, and governance and public responsibility committee chair, James McNerney, came under fire for "failing to take responsibility" for these issues, despite a shareholder proposal that sought reporting on efforts to limit deforestation winning 67.7% support at P&G's 2020 annual meeting.
The campaign has already made waves, with P&G announcing that McNerney will not stand for re-election at its upcoming October 12 annual meeting.
Investors are now focussing their efforts on encouraging fellow shareholders to vote against the re-election of Braly but whether these efforts will bear fruit has yet to be seen.
Investors Are Typically Hesitant To Vote Against Directors
Despite both environmental concerns and human rights abuses being priority concerns for investors this proxy season, history would suggest that investors are typically hesitant to vote against directors as a way to express their discontent. So far this year, only 0.06% of directors up for election at U.S.-listed companies have failed to win majority support, compared to 0.04% and 0.05% throughout 2019 and 2020, respectively, according to Proxy Insight Online data.
Braly's membership of the Exxon Mobil board, although she was not targeted for removal by hedge fund Engine No. 1 in a heavily ESG-flavored proxy contest, has opened her up to attacks by association.
"Her past position as chair of a key ExxonMobil committee shows how comfortable she is putting profits over people, and upholding the oil and gas industry's long-running climate denial efforts," Tyson Miller, forest programs director at Stand.Earth, told Insightia in an interview. "It is no surprise Braly has also utterly failed to help P&G address the human rights and environmental violations in its supply chains, despite clear direction from shareholders to address those concerns."
Shareholders have kickstarted many similar campaigns this year, urging investors to oppose directors due to ongoing governance failings, which have been subject to mixed results.
McDonald's And Electronic Arts
In April, the New York City Comptroller and SOC Investment Group urged McDonald's investors to vote against selected directors who failed to implement a "zero reward" policy in cases of sexual misconduct, following former CEO Steve Easterbrook's dismissal for "inappropriate fraternizing" with a subordinate.
Despite a formidable number of investors joining the cause, McDonald's board chair Enrique Hernandez and compensation committee chair Richard Lenny still won sufficient support for re-election, receiving 70.2% and 79.5% support, respectively, at the company's May 21 annual meeting, according to Proxy Insight Online data.
More recently, in July, SOC Investment Group urged investors to oppose Electronic Arts' (EA) compensation committee members and "say on pay" proposal, citing concerns regarding the excessive use of special awards for executives.
EA shareholders had no qualms with voting against the S&P 500 multimedia company's remuneration report, which won just 41.9% support, but compensation committee members Luis Ubiñas (the committee chair) and Leonard Coleman won 79.3% and 86.5% support, respectively.
It may be the case that P&G investors are also hesitant to vote against directors, choosing to instead direct their opposition toward executive remuneration, as shareholders in similar circumstances have elected to do in the past.
Regardless of the strategy investors choose to implement, the message is clear; shareholders expect companies to demonstrate sufficient oversight of ESG concerns, otherwise voting action will steadily escalate.
Rebecca Sherratt, Corporate Governance Editor, Insightia
