Shareholder Proposals Increase, Yet Few Gain a Majority

More shareholder proposals, but lower levels of success. That is the assessment of the 2023 proxy season from Institutional Shareholder Services Inc., the proxy advice firm, which also owns CIO. E&S proposals were by far the predominant variety, with 340 filed, as compared with 224 dedicated to corporate governance.

The summary was released by ISS in its report, “In Focus: Shareholder Proposals in the 2023 U.S. Proxy Season.”

As of June 15, the report noted, few environmental and social proposals had mustered a majority, and support for them dipped to an average of 19% from 26% the year before. At the same time, ISS found an uptick in anti-E&S proposals. Shareholder resolutions most often are non-binding and often are voted on from April to June.

E&S proposals ballooned to 340 from 274 last year. These topics are mainly concentrated on climate change and diversity, equity and inclusion. Only two climate proposals received a majority: One urged New York Community Bancorp Inc. to report its climate-oriented lobbying, and the other wanted shale oil and gas producer Coterra Energy Inc. to disclose its methane emissions.

The reason for the increase in E&S resolutions likely was a new Securities and Exchange Commission rule making it more difficult for companies to exclude shareholder ballot questions, according to ISS. At the same time, ISS reasoned, the support level for these proposals slipped because they “were considered to be more prescriptive and/or less likely to lead to long-term shareholder value.”

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The number of anti-E&S proposals doubled to 40 this season, at a time when Republican-led states are attacking DEI and climate efforts as leading to inferior returns—a notion labeled bogus by proponents of those efforts. “This year marked a turning point in politicization” of the subject, ISS observed. Anti-E&S resolutions, however, averaged less than 5% of the vote.

On the governance front, the ISS report pointed out that the number of such resolutions has fallen slightly in each of the last two years from a 2021 high of 239. The likely reason was identified as a shifting of investors’ focus toward E&S—combined with governance, they are known as ESG.

The most prevalent governance proposal was requesting an independent board chair. Governance resolutions attracted an average of 29.6% of the vote, slightly up from 2022’s 28.7%.

Executive compensation was a prominent topic, generally seeking to require that shareholders must approve pay beyond a certain level. Several such say-on-pay proposals targeted severance beyond three times an executive’s salary and bonus, according to ISS. Two such resolutions mustered a majority, down from four last year.

One governance proposal did spectacularly poorly among shareholders this proxy season, garnering just 0.3% of the vote: It sought to ban directors of Netflix from simultaneously sitting on boards at other companies.