Every year between the middle of April and the middle of June, proxy season occurs and sees some of the biggest corporations on the planet host their annual meetings.
In the weeks and even months leading up to these crucial meetings, corporations ordinarily provide their shareholders with important information – represented as proxy statements – which include details about the company and the issues upon which shareholders will vote during the upcoming annual meeting.
It’s probably no surprise to you that this is a crucial time for activist investors, as it provides a window for them to influence the company’s direction by voting.
In the lead up to the 2022 proxy season, we’re going to see some changes, which is why we’ve introduced you to five key tips that you need to be aware of.
ESG topics will be more prominent than ever before
The last few years have been bizarre, but our diversion from ‘life as we knew it’ had an intriguing, unexpected consequence: it provided us with sufficient time to consider many of the big issues. We can no longer ignore the renewed global focus on social and environmental issues, particularly because they influence the financial and corporate worlds.
During the 2021 proxy season, increased importance was given to inclusion and sustainability. And while social and environmental topics have been largely unmoved since 2020, there has been an increase in shareholder interest in these topics in recent times.
Events including the global pandemic, social unrest, and racial violence have caused shareholders to make new proposals, hoping for racial justice and more equal opportunities. For the very first time in history, social and environmental issues accounted for the majority of proposals submitted in the last calendar year.
That being said, environmental proposals are least likely to go to vote, while governance proposals are most likely. We saw that of the environmental issues that made it to vote last year, an impressive number received more than 50% support. Many believe that following the COP26 Summit and the subsequent Glasgow Climate Pact, this trend is likely to continue.
There is an increase in shareholder activism
Shareholder Activism used to be a term reserved for the affluent few who had the financial means to commandeer companies and engineer big changes for shareholders. But now, activism is receiving more attention as a viable solution to negate corporate irresponsibility and greed.
For example, in the United States alone, the number of activist campaigns has increased by 200% in the previous four quarters. High-profile successes – notably that of Engine No1’s coup on the ExxonMobil board – have inspired new and innovative approaches that are hustling for improved practices within corporations.
This is no secret to the big investment firms either, who have begun extensive advertising to promote their ethical portfolios and a plethora of sustainable investing opportunities. To help investors make more informed decisions about ESG investing, the UK’s Financial Conduct Authority has issued detailed guidance on such practice.
New rules on proposal submissions
The US Security and Exchange Commission (SEC) set Rule 14a-8 that stipulates how much stock an individual must own within a company in order to submit a shareholder proposal. In the past, you were required to own $2,000 of shares, or 1% of the corporation’s securities, but the parameters have changed to:
- $2,000 of the company’s securities for at least three years;
- $15,000 of the company’s securities for at least two years; or
- $25,000 of the company’s securities for at least one year.
The increased ownership parameters are a result of decisions taken by the Trump Administration, which have made it more difficult for ordinary investors to submit shareholder proposals, but this is currently being challenged in law.
Decried by US Senator Sherrod Brown, the rule has been seen as “yet another ploy by the Trump Administration to undermine shareholder democracy. Last year’s changes to the SEC rule on shareholder proposals made it much harder for working families and investors to hold corporate management accountable.”
This being said, there’s undoubtedly hope of a future amendment, as a separate Trump-era policy has already been reversed by the SEC.
Trump-era policy reversals
A Trump-era policy that made it more straightforward for companies to exclude particular shareholder submissions from proxy statements has been reversed by the SEC.
Thanks to new guidance and with regard to social and environmental topics, the process for shareholder proposal submissions will be more streamlined. The policy revision calls for SEC staff to be more receptive and open-minded towards shareholder proposals that regard issues that are likely to have a “broad societal impact.”
Such a change exemplifies the SEC’s increasing focus on shareholder democracy under the Biden Administration, meaning that executives are more likely to be held accountable for ESG-related shortcomings by their shareholders.
Investors will now be able to track voting decisions more easily
Further to the changes already introduced, changes to the ‘form N-PX’ have been suggested by the SEC, which deals with a company’s proxy voting record. Essentially, the proposed changes would enable journalists and investors to track voting decisions more easily, which would mean that voting information is easier to analyse, and there is greater transparency in the entire voting system.
Moreover, it will also necessitate companies to categorise the ballot to enable investors to vote much more easily on the issues that they’re concerned with. Categories are likely to include: votes concerned with the board of directors, social & environmental policies, and corporate governance, in addition to several other distinct categories.
At present, such categorisation is not required within the system, meaning that proxy statements don’t typically carry standardised descriptions. Ultimately, this can contort the process and make it much more difficult for investors to have their voices heard when it comes to voting on the issues that they’re passionate about.