Proxy preparation

Shreena Patel, Associate Director, Critical Issues at Bladonmore, looks at what directors and investor relations teams should expect from proxy season in 2024.

This year, more than ever before, public companies are faced with duelling shareholder proposals. It’s highly possible that a company could simultaneously face one proposal requesting the company provide more information on ESG and a separate proposal demanding the dismantling of DEI initiatives.

With record numbers of proxy proposals in 2023, experts are anticipating even more this year, but common themes of these proposals prove hard to agree upon. The Conference Board describes the 2024 proxy season as having ‘a ‘scattershot’ feel to it.’

To add to the confusion, investors and directors appear to be prioritising different topics for the year. According to findings by EY, directors in the Americas will focus on economic conditions, capital allocation, cybersecurity and data privacy. Investors however are set to look at the talent agenda, climate change, environmental stewardship and supply chain matters and capital allocation. The report also states that investors may be more willing to vote against directors to signal concerns, with 29% of investors saying they could support shareholder proposals if they had concerns about the board’s risk and opportunity oversight.

With 2024 set to be a potentially difficult proxy season for Directors, what other trends should we all be aware of?

Trends to watch

One widely reported trend from the year past was waning support for shareholder proposals. That said, not every proposal received low votes – amongst Russel 3000 companies, corporate governance garnered the highest support of any category at 30%, followed by executive compensation at 23%. This trend could be set to continue, with governance-based proposals the first two to pass in 2024, according to a report by the Conference Board.

Contrasting the rise in support for governance proposals, environmental and social proposals hit a five-year low last year. Although some companies will still face these proposals, it could be a sign that support for this agenda could well be in decline.

A presidential year will always have some impact on proxy season. This year, the US is seeing an increase in proposals from self-described ‘conservative’ groups. As of March 13th, a Conference Board forecast says 16% of shareholder proposals among S&P 500 companies came from these groups, up 3% on the previous year.

Countering some of these proposals could be the recently filed resolutions from a coalition of non-profit groups seeking answers as to why major institutional investors have been less regularly voting in favour of DEI resolutions, even as they profess a commitment to racial justice, according to Strive Asset Management.

For the first time ever, the increasing importance of AI has also broken into proxy season. Apple and Disney both face their first ever shareholder proposals on AI. They were asked to prepare reports on AI’s use in their business operations and to disclose ethical guidelines adopted for its use.

Meeting the moment

In what promises to be an interesting proxy season, here are a few ways for investor relations officers and boards to prepare:

  • Be clear about board training and oversight practices

Given the research found by the likes of EY, it is very important for boards to disclose training and education in areas like cybersecurity and climate, as well as communicating the tasks that the board carries out on those fronts

  • Strive for a consistent message

Given the polarised environment executives face, its vital that they communicate clearly. That means expressing a consistent message in all communications and shareholder engagements Linking a company’s positions to shareholder value will also carry a lot of weight.

  • Don’t shy away from talking in dollars and cents

When a company opposes a shareholder proposal, it is important to explain its opposition. Selling your decision by talking about the inherent costs involved, as well as any unintended consequences or limitations of the benefits can be a very powerful tool.

Proxy season has always been nerve-wracking, but the angst is ratcheted up in a year characterised by unknowns. For investor relations teams and company executives embarking upon this proxy season, the best strategy may simply be staying informed and reacting quickly to changing conditions.

If you’re looking for help preparing for proxy season, get in touch.

 

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Shreena Patel

Associate Director, Critical Issues

Shreena focuses on a range of strategic positioning, narrative and development projects.

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