Proxy season: top 10 governance trends for 2013
Being responsive to shareholder concerns about topics such as board diversity and political spending can pay off, according to our analysis of 2013 proxy statements.
Shareholder influence in the boardroom is growing. Investors are using proxy voting and shareholder proposals to challenge a wide spectrum of corporate governance practices – from board diversity, to focus on environmental topics, to transparency around political spending.
In our study of the 2013 proxy season, we found that many companies made significant efforts to engage with investors and demonstrate a meaningful level of responsiveness. These efforts have paid off for directors and management teams, with shareholders offering higher support for director elections and say-on-pay (SOP) votes.
1. Shareholder proposal submissions increase
For annual meetings during the first half of the year, the number of shareholder proposals increased by 6% over the same period last year. In particular, smaller investors may be using shareholder proposals to trigger dialogue.
The number of shareholder proposals withdrawn before coming to a vote is also increasing – most often because the company has engaged with shareholder proponents.
2. Board leadership structure debate continues
Investors continue to push for independent board chairs. This year, shareholders have submitted a record number of proposals on the topic.
At the same time, support for shareholder proposals about independent board chairs declined, averaging 31%, compared to 36% last year. These conflicting results show that the debate about leadership structure is by no means over.
3. Board diversity remains a priority — board turnover comes under scrutiny
When describing their nominees for directors, boards are increasingly focused on diversity, broadly speaking. However, growth in gender diversity — a critical component — is slow. Women represent 15% of directors on S&P 1500 boards, up from 14% in 2012. This is despite long-standing investor efforts to promote change.
Many people believe that one of the greatest obstacles to increased diversity is the lack of board turnover.
4. Directors receive increasing support
Opposition to director elections has reached its lowest point in more than five years. The main reason appears to be investors’ ability to vote on say-on-pay (SOP) proposals. Increased company-shareholder engagement and enhanced disclosures on board composition also seem to be playing a role.
5. Environmental and social topics continue to dominate shareholder proposal landscape
Nearly 40% of all shareholder proposals were focused on environmental and social topics – the largest of any category. In particular, shareholders continue to push for increased transparency about the management of sustainability-related risks and opportunities.
6. Shareholders press for transparency of political and lobbying spending
It appears unlikely that the Securities and Exchange Commission (SEC) soon will propose rules requiring disclosure of corporate political spending. But shareholders are likely to continue to campaign for increased transparency on a company-by-company basis.
Proponents already have succeeded in getting many large companies to voluntarily disclose US political expenditures.
7. SOP support increases, targeted compensation shareholder proposals return
Overall support for SOP proposals has climbed to 92% this year, from 91% in 2012. Company proxy disclosures highlight increasing engagement with investors in connection with SOP votes.
Although investors are showing increasing support for overall pay programs, proponents are targeting specific company pay practices with compensation-related shareholder proposals.
8. Companies with staggered boards targeted for change
Companies are moving away from staggered boards to annual elections of all directors. Especially at larger companies, these changes were driven by shareholder proposals.
In 2013, nearly 90 companies with staggered boards were targeted with shareholder proposals on this topic. Nearly 60% agreed to implement annual elections in exchange for withdrawal of the shareholder proposal.
9. Proxy access fizzles
So far, investors have sought proxy access only at select companies with a series of long-standing governance concerns, and are not pushing the reform market-wide. The momentum for proposals around proxy access seems to be fading.
10. Proxy disclosures enhanced to tell governance story
In our analysis of available Fortune 100 2013 proxy statements, we found that more companies have begun to use their proxy statements to communicate about governance topics and secure investor confidence and support.
Over time, these disclosures may lessen the need for direct dialogue between companies and investors, lay the foundation to make direct dialogue more productive and efficient – or both.