2024 Proxy Season Preview

Overview

Looking Back: Recent proxy seasons[1] were characterized by greater numbers of shareholder proposals along with declining levels of shareholder support for them.[2] As a category, support for environmental and social proposals declined to a five-year low from a highwater mark in 2021. Moreover, a greater number of directors and say-on-pay proposals failed to attain majority support last season than at any time in the past five seasons.[3] Technology innovations opened additional avenues for participation in corporate governance. Virtual shareholder meetings continued as the venue of choice for many companies despite return-to-work policies, end-to-end vote confirmation was (and continues to be) provided for most routine shareholder meetings, and proxy voting “apps” were launched for retail shareholders.

Looking Ahead: Technology innovations and the SEC’s new rules for Universal Proxy will further democratize corporate governance in the 2024 proxy season, adding ways to inform and engage investors. Electronic voting platforms and processing for Universal Proxy contests are up and running, making it easier and clearer for shareholders to pick and choose directors from competing slates. Pass-through voting “pilots” are going mainstream as the largest asset managers provide investors with a voice on how shares of portfolio companies are voted. Based on recent data over the past 8 months and the first 6 weeks of 2024, the trend of increasing numbers of environmental and social proposals, along with declining shareholder support for them, could continue this proxy season. The SEC’s final action on climate disclosure is overdue and new rules are expected to be voted on soon.

Discussion

Universal Proxy Is in Full Swing: SEC rules went into effect on September 1, 2022, and since then Broadridge has processed distributions for 30 contested shareholder meetings.[4] Twenty-eight of them took place in 2023. We see little evidence that the rules alone will lead to more battles for control, as the number of contested solicitations thus far is generally within a “typical” range. All eyes will be on the largest, highest profile contests. Broadridge’s systems and processing of the Disney/Trian/Blackwells proxy fight are set to reconcile voting entitlements for beneficial shareholders well in advance of the April 3 meeting date and provide real-time audits of vote accuracy for the aspects of the process that Broadridge administers.

This past November, the SEC issued guidelines aimed at providing participating shareholders with greater clarity when voting universal proxies.[5] The guidelines specify how “mismarked” ballots are handled. In general, because most shares are voted electronically, the potential for mismarks is eliminated by systems that limit director votes to the number of seats available. And, when shareholders “check” fewer directors than they’re entitled to elect, the system prompts them to vote the full number. The guidelines are especially relevant in making clear how paper ballots are handled when they are over-marked, under-marked, or signed but not marked. Paper ballots typically represent a small portion of shares overall and require manual processing.[6]

Pass-Through Voting Is Going Mainstream: Pass-through voting occurs when asset managers provide institutional investors with ways to directly vote shares held in separately managed accounts – or, in the case of retail investors, with a voice in how the shares of portfolio companies held in mutual funds and ETFs are voted.

Recent pilots of pass-through voting systems are coming into the mainstream. Several of the largest asset managers are launching communications campaigns to make their investors aware of this additional way to participate in corporate governance. Pass-through voting systems can be designed to obtain voting preferences based, for example, on a range of governance guidelines. Vanguard, BlackRock, and State Street Global Advisors have announced expansions of their programs this proxy season.[7]

Environmental and Social Proposals – More Smoke than Fire? Over the past 8 months, 54 environmental and social proposals came to a vote. Over the same 8-month period a year earlier, there were 36.[8] If the past 6 weeks provide any indication, albeit a small sample, the number could increase this proxy season. From January 1 – February 15 this year, 18 environmental and social proposals were voted on. By comparison, just 5 were voted on in the same 6-week period in 2023.[9]

Shareholder support for environmental and social proposals could continue to decline overall.[10] Over the past 8 months, based on companies’ 8K filings of all voting results, the average level of support fell to 14.6%. Over the same 8-month period a year earlier, support stood at 22.2%. Although too small a sample to draw conclusions this early in the season, we note that from January 1 – February 15 this year, the average support for environmental and social proposals was just 6.7% (for the 18 proposals that came to a vote). Some observers have attributed declining support generally to changing policies among proxy advisors, company efforts to provide greater levels of disclosure and, among other things, the nature of the proposals themselves.

Many participants in corporate governance are eagerly awaiting the SEC’s rules on climate disclosure which were scheduled for final action in 2023. Some observers expect the Commission to vote on them soon. A circulating proposal is said to exclude the most contentious requirement of reporting “scope 3” emissions.[11] It remains to be seen whether the rules could withstand legal challenges. The SEC has received more than 15,000 comment letters on the proposed climate disclosure rules.[12]

Endnotes

1As a rule of thumb, over 80% of annual shareholder meetings take place from January through June each year. Most of the largest companies hold meetings in the spring “proxy season.”(go back)

2Refer to “Broadridge ProxyPulse: 2023 Proxy Season Preview.” Based on Broadridge’s processing of shares held beneficially, in street name, across 1,000+ custodian bank- and broker-dealer clients. The number of shareholder proposals submitted for a vote increased significantly to 588 in the 2023 proxy season from 510 in the 2022 proxy season, while shareholder support (among these accounts) fell to 24.6% from 34.4% in ’22 season, the lowest level in five years.(go back)

3Id.(go back)

4As of February 1, 2024.(go back)

5https://www.sec.gov/corpfin/proxy-rules-schedules-14a-14c-cdi.htm. Broadridge’s Independent Steering Committee, consisting of corporate issuers, institutional investors, custodian banks, and broker-dealers met over the past summer and fall to consider ways to make the rules clearer to shareholders, and members of the Committee made recommendations to the SEC.(go back)

6In the 2023 proxy season, at 4,554 shareholder meetings, 97% of the shares voted through Broadridge were cast electronically on behalf of accounts held in Broadridge’s custodian bank- and broker-dealer clients. Refer to “2023 Proxy Season Key Stats and Performance Ratings,” Broadridge.(go back)

7Refer to https://corporate.vanguard.com/content/corporatesite/us/en/corp/who-we-are/pressroom/press-release-vanguard-launches-proxy-voting-choice-pilot-020123.html; https://www.blackrock.com/corporate/about-us/investment-stewardship/blackrock-voting-choice; and, https://www.ssga.com/us/en/intermediary/etfs/about-us/what-we-do/asset-stewardship/proxy-voting-choice.(go back)

8Based on Broadridge’s coding of proposals contained in companies’ 8K filings. Comparison of the 8-month period from July 1, 2023 – February 15, 2024, to the same period in the prior year (i.e., July 1, 2022, to February 15, 2023).(go back)

9Our analysis did not attempt to match companies on a “same store” basis or account for possible differences in the scheduling of shareholder meetings year over year.(go back)

10Based on Broadridge’s processing of votes of beneficial shareholders, support levels have declined from the highwater mark of 37.4% in 2021. Refer to “Broadridge ProxyPulse: 2023 Proxy Season Preview.”(go back)

11“US Regulator Drops Some Emissions Disclosure Requirements from Draft Climate Rules,” Reuters, February 23, 2024 (Prentice, Binnie, Renshaw, and Gillison).(go back)

12Refer to https://www.sec.gov/news/testimony/gensler-senate-testimony-091223.(go back)