In late 2021 the SEC announced that it would take a new approach to the economic relevance and ordinary business exemptions through the no-action process. This led to the SEC allowing fewer shareholder proposals to be omitted by issuers, and the first half of 2022 saw a significant increase in shareholder proposals that went to a vote.

A total of 538 shareholder proposals reached a vote in the first half of 2022. This is a significant increase from 385 in the first half of 2021. Of note, this increase in volume did not coincide with an increase in the number of proposals that received a majority vote. In 2021, 76 proposals received a majority vote, compared to 73 in 2022.

Governance, social and environmental proposals all increased in volume in 2022. Most notably, social proposals increased from 99 to 215 year over year, making up 39% of all shareholder proposals. Governance proposals made up just under half of the total shareholder proposals, which is a drop from 59% in 2021. Environmental proposals made up approximately 15% of all shareholder proposals in both 2021 and 2022.

Due to the change in the SEC stance on no-action letters, 2022 reversed the trend of fewer shareholder proposals going to a vote in 2021 than in 2020. 2022 is the highwater mark for shareholder proposals going to a vote, in large part due to the SEC’s decision.

Below we look at some of the more popular proposals. Numbers and percentages are based on Russell 3000 companies unless otherwise noted.

Severance Packages

Proposals requesting that director severance agreements come to a shareholder vote increased significantly year over year. So far this year, 14 proposals appeared on ballots. This is a major jump from 2021, when only one proposal appeared. This proposal has only passed once in the preceding five years but, passed four times already in 2022. The companies where the proposal passed this year are Fiserv, Inc. (FISV), Alaska Air Group, Inc. (ALK), AbbVie Inc. (ABBV) and Spirit AeroSystems Holdings, Inc. (SPR).

Call Special Meeting

The shareholder right to call a special meeting appeared as a voting item on 108 ballots in 2022, a notable increase from 32 in 2021. Average support also increased year over year from 32.23% in 2021 to 36.57% in 2022 of votes cast FOR. This proposal received a majority of votes in favor four times in 2021 and nine times in 2022.

Written Consent

The number of proposals related to shareholders’ right to act by written consent dropped significantly year over year. In 2021, a total of 72 proposals appeared, 11 of which passed. This year, six proposals were voted on and only one passed. Support for written consent proposals also dropped year over year, as the average FOR vote decreased from 40.38% in 2021, to 34.55% in 2022.

Allow Virtual Attendance at all Shareholder Meetings

A proposal to allow virtual attendance at annual and special meetings appeared for the first time in 2022 at Jack in the Box Inc. (JACK). JACK made no recommendation with regards to the proposal and it passed with 69% of the vote in favor. This proposal specifically requested amendments to the company’s governing documents to “ensure that moving forward, its annual and special shareholder meetings will be held either in whole or in part through virtual means (i.e., webcast or other on-line system) and that virtual attendance be allowed.” This proposal was intended to bolster shareholder accessibility to company shareholder meetings.

Adopt Simple Majority Vote

Proposals to adopt simple majority voting for directors were neither as popular nor as supported year over year.  In 2021, six of these proposals reached the ballot, all of which passed with high returns of shareholder votes in favor – average FOR vote around 91.32%. In 2022, only two proposals made it to ballot, one of which passed at Netflix, Inc. (NFLX) with 58.40% votes in favor. The other proposal failed at Vertex Energy, Inc. (VTNR) and only received 16.9% of votes in favor. This year’s results were more in line with that of 2020, when two of three simple majority proposals failed, and average support was 36.10% of votes cast in favor.

Public Benefit Companies

The 2021 proxy season was the first time Public Benefit Corporation proposals appeared, reaching a vote sixteen times. Shareholders opposed these proposals, as all sixteen failed – the average FOR vote only at 3.43%. After low voting support last year, the volume of these proposals dropped significantly, to a total of three in 2022. The percentage of votes cast FOR remained in the single digits this year, at a 2.13% average.

Animal Welfare

Eight proposals relating to animal welfare took place in 2022, none of which passed and average support was 15.95%. Despite the poor turnout, both the number of proposals and average FOR vote trended up year over year. In 2021, only two animal welfare proposals made it to a vote. Both failed and averaged 7.45% of votes cast in favor.

Report on EEO

Five proposals requesting reports on the effectiveness of diversity, equity and inclusion metrics appeared in 2022. Each of the five failed to receive a majority of votes cast in favor, and the average vote in favor was 34.88%. This is a decline from 2021, when ten proposals appeared and received far more shareholder support. Of the ten last year, five passed and the average support was 58.24%.

Racial Equity

Both the volume and support of proposals calling for racial equity and/or civil rights audits trended up year over year. In 2021, nine proposals reached a vote and all failed to receive majority support. So far in 2022, nine of twenty-six proposals passed, averaging 44.14% of votes in favor. Examples of the companies where racial equity and civil rights proposals passed in 2022 include Apple Inc. (AAPL), Johnson & Johnson (JNJ), The Home Depot, Inc. (HD), and McDonald’s Corporation (MCD).

Report on Climate Change

Shareholder support for climate change proposals declined year over year. Last year, eight of 17 proposals received majority support and in 2022, 23 proposals were voted on and only four passed. The average vote in favor dropped from 52.64% to 31.25%.

GHG Emissions

Twenty-four proposals related to greenhouse gas emissions came to a shareholder vote in 2022. This is a major increase from five in 2021, of which four passed and received an average FOR vote of 74.58%. The success rate of GHG proposals did not carry over to 2022, as only seven of the 24 total passed, though, as noted, many more proposals came to a vote in 2022. The average FOR vote in 2022 was 41.94%.

Political Lobbying and Contributions

Both political lobbying and political contributions proposals remained popular ballot items in 2022. A total of 29 lobbying proposals appeared in 2022, only two of which passed. Political disclosure proposals appeared on 20 ballots in 2022, and again only two passed.

Average support for both lobbying and political contributions proposals waned year over year. In 2022, the average vote FOR lobbying proposals was 34.60%, down from 36.73% in 2021. Political contributions proposals had an average FOR vote of 30.34% in 2022 and in 2021 the average vote FOR was 40.16%.

Human Rights

Proposals calling for reports on human rights practices increased year over year, from six in 2021 to 16 in 2022. Despite this increase, the number of proposals receiving majority vote did not change – only one each year. Average percentage of votes cast FOR in 2022 was 28.43%. This is a slight decrease from 34.80% votes cast FOR in 2021.

Tobacco Products

In 2022, a proposal was put forth requesting a company phase out the sale of tobacco products. This is the first time a proposal of this nature has come to a vote. The proponent was a shareholder of Philip Morris International (PMI). The proposal requests that PMI initiate a plan to terminate the sale of addictive products by 2025. Management of PMI recommended a vote against this proposal, stating that a plan of this scope would require significant government and industry involvement. Shareholders also largely opposed this proposal – which received only 1.50% of votes cast in favor.

Separately, the 2022 proxy season also saw a proposal requesting the preparation of a tobacco related report. This proposal took place at Walgreens Boots Alliance (WBA). This proposal is quite rare, only appearing three other times in the past decade. None of the four received a majority vote and only averaged 23.93% of votes in favor.

Charitable Contributions

The volume of proposals regarding charitable contributions reports increased year over year – voted on 13 times so far in 2022 versus only once in 2021. The resolution for charitable contributions proposals typically asks the company to report on who they donate to and how much. Shareholders have opposed this proposal significantly – all 13 so far this year have failed and have received less than 10% of votes cast in favor.

Link Executive Pay to Social Criteria

Over the past several years, proposals requesting companies incorporate ESG metrics into executive compensation programs have been popular. From 2015 to 2021, this proposal appeared a total of 56 times, appearing on between five to 11 proxies a year. Shareholders have consistently opposed this proposal, as it has failed to receive a majority of votes in favor any of the 56 instances during this period. Perhaps related to this lack of support, this proposal only appeared once in 2022, and again failed, only receiving 14.8% of votes cast in favor.

Product Toxicity and Safety (reports on public health)

Nine proposals requesting companies report on product toxicity and safety have appeared so far in 2022. Most of these proposals requested that companies issue reports on external public health costs. However, some specifically request reports on items such as pesticide or antibiotic use in a company’s supply chain. Proposals this year have been met with opposition from shareholders, as all nine have failed to garner majority support. The average FOR vote in 2022 is 14.62%.

Recycling (plastic use/pollution)

The volume of recycling-related proposals increased year over year, after only appearing once per year in both 2020 and 2021. So far in 2022, eight proposals have been brought forth, mostly calling for reports on plastic pollution and reduction. However, two proposals were instead specific to sustainable packaging – one of which passed at Jack in the Box, Inc. (JACK). All other proposals in 2022 failed to reach a majority of votes in favor. However, it is worth noting that the average vote in favor was relatively high at 45.89%.

As the SEC took a new approach to the no action process, shareholder proponents had much more success in 2022 when it came to having their proposals reach a vote.

Average support for governance proposals generally remained in line with 2021 but average support for environmental and social proposals decreased from the mid-thirties to the high twenties. In fact, certain proposals that were popular and highly supported last year received much lower average support in 2022. The lower average support isn’t necessarily unexpected since many of the proposals had a significant increase in volume.

Looking forward, shareholders will take stock of the successes and failures of this year’s proposals when considering which proposals to submit in 2023. Next year, not surprisingly, we would expect proposals that were significantly supported to continue to be proposed by shareholders and proposals that were not strongly supported by shareholders are likely to be avoided by proponents. With the change in SEC stance on the no-action process, and the continued concern of investors regarding E&S issues, it will be interesting to see what new proposals may be offered for the 2023 proxy season.