Six Early Takeaways from the 2024 Proxy Season

Introduction

With November’s election on the horizon, the politicization of ESG topics remains a key concern for both investors and corporations. Over three quarters of North American CEO respondents to Teneo’s CEO and Investor Survey[1] have stated that it has impacted the way their business operates. Nevertheless, an overwhelming 92% of CEOs stand behind their companies’ ESG-related programs, per the same survey. Similarly, large institutional investors have underscored their focus on material ESG issues in their 2024 stewardship reports (as summarized in Teneo’s Three Key Considerations for Companies Heading Into the 2024 Season) with an emphasis on governance and fiduciary duty.

To help companies and other interested parties unpack how this backdrop impacted 2024 proxy season,  we analyzed the vote results of S&P 500 companies[2] and summarized our key takeaways below.

1. At the season’s two biggest proxy contests, investors showed faith in seasoned CEOs’ strategies as opposed to those proposed by activists. The companies at the center of two of the biggest proxy fights of the season, Disney and Norfolk Southern, saw management successfully stave off attacks against the incumbent board. But neither of Nelson Peltz’s candidates won seats on Disney’s board, and while Ancora won three board seats at Norfolk Southern, the outcome was the same as the settlement offered by the company –  amounting to a win for management.
2. Most corporations and institutional investors show little appetite for abandoning ESG programs altogether, as evidenced by miniscule anti-ESG proposal support. Although the number of “anti-ESG” proposals increased by 66% in 2024, they remained unpopular with investors. Average support was only 1.9%, down slightly from 2% last year. While anti-ESG factions may be emboldened by recent regulatory initiatives in red states, their arguments do not appear to resonate with larger institutional investors.
3. Many governance proposals received overwhelming support from investors, in contrast to certain environmental and social topics. The number of governance proposals increased slightly in 2024, while average support increased from 32% to 37%.  Twenty-four governance proposals received majority support in 2024, more than twice as many as last year. Most often, these were proposals seeking that companies adopt a simple majority vote in board elections and, in many cases, were not opposed by management. Other winning governance proposals included board declassification, eliminating supermajority voting and reducing the ownership threshold for shareholders to call a special meeting.
4. GHG emission disclosure proposals saw greater support at smaller companies, yet the SEC’s final climate rule may impact investor appetite for greater disclosure. The most common environmental proposals related to greenhouse gas emissions and decarbonization plans. On average, these proposals received 28% support, higher than the average for all environmental proposals (18%). While no S&P companies saw an environmental proposal receive majority support, GHG emissions target proposals at two companies in the broader Russell 3000 did. These proposals have proven to be more additive at smaller companies that are evolving their climate disclosure, as larger companies have been faster to adopt and disclose climate targets. While the ultimate terms of the SEC’s climate disclosure rule remain unclear, it will be interesting to see if investor appetite for greater disclosure remains after the rule is finalized.
5. Political and lobbying activity proposals continue to proliferate ahead of the election, but large investors believe current disclosure is sufficient. The number of social proposals declined slightly in 2024, and the average level of support dropped 23% to 18%. One social proposal seeking a report on political contributions received majority support. Political activity proposals seeking reports on lobbying, political spending and the congruency between a company’s stated values and their political activity represented about one third of all social proposals. Proposals focused on employee rights were also common, particularly with respect to diversity, equity and inclusion and collective bargaining.
6. While vote opposition to directors is rare, investors are willing to send a message when it comes to governance issues like equal voting rights and director capacity concerns. Investors and proxy advisor support for directors remained high in both 2023 and 2024; average support rose from 95.9% to 96.4%, likely bolstered by Institutional Shareholder Services’ lower rate of withhold recommendations (2% compared to 2.5% in 2023). Fewer directors received less than 70% vote support in 2024, compared to the prior year. Multiclass share structures were the biggest driver of low director support, including for the only two directors that received less than majority support. Over-boarding and attendance issues were also common reasons behind lower votes.

Conclusion

Overall, investor votes were more aligned with management than they have been in the past several years. Political uncertainty and potential legal challenges have raised the stakes of taking bold stances on environmental and social issues. Nevertheless, material environmental and social issues remain key areas of focus for both investors and corporations, as evidenced through their stewardship reports and public disclosures. More than 90% of S&P 500 companies that published their annual sustainability report in 2024 continue to use the terms “ESG” and “DEI” throughout the report and, often, in their proxy statements.[3] With a greater focus towards value proposition and materiality from regulators and investors alike, alignment between shareholder votes and management is driven by strong performance, as well as robust engagement between companies and investors. As such, it is important that companies maintain an open dialogue with investor stewardship teams on a variety of environmental, social and governance topics, and incorporate their feedback when possible.

Endnotes