Starting off the new year, consultant Semler Brossy's latest report analyzes proxy results for 2023 among the S&P 500 and the Russell 3000, including votes on say on pay, environmental and social shareholder proposals, director elections and equity plans. According to SB, last year saw improvements in say-on-pay vote results and a decline in approval rates for E&S shareholder proposals. There was little change in the rate of favorable votes for director nominees, while there was an increase in vote failures for equity plan proposals. And SB shows that unfavorable vote recommendations from ISS apparently do make a difference.

Say on pay. As calculated by SB, companies in the Russell 3000 experienced a 2.1% failure rate (50 failures), the lowest rate since 2017 and a 1.6 percentage-point decline from the 3.7% failure rate (82 failures) set in 2022, which was the highest rate since 2011. The average approval was 90.0%, which SB characterizes as generally comparable to prior years. Consistent with those trends, the failure rate among companies in the S&P 500 was slightly higher at 2.5%, with an average favorable vote of 88.7%. By industry segment, companies in communications services had the highest say-on-pay failure rate at 5%, followed by IT and healthcare at 4%. The lowest appeared to be the utilities sector with less than 1%. Interestingly, SB took a look at the impact of ISS recommendations on say-on-pay votes. It turns out that, for companies in the Russell 3000, the average favorable vote was 26 percentage points lower (67%) for companies that received an "Against" recommendation from ISS as compared with companies that received a favorable recommendation (93%). SB also runs through a list of, in SB's view, the most likely causes of vote failures: at the top was the relation (or lack thereof) between pay and performance, followed by the rigor of performance goals, problematic pay practices, non-performance-based equity, special awards/mega grants and finally, shareholder outreach and disclosure. A number of companies had had multiple failures, including some at 12 and 13 failures.

E&S proposals. According to SB, in 2023, there were 258 social proposals and 106 environmental proposals submitted to shareholders for votes, but only five social proposals (2%) and two environmental proposals (2%) won majority support. Although the number of E&S proposals increased significantly in 2023, median support declined substantially from the prior year to 15% favorable vote for social proposals and 18% favorable vote for environmental proposals. By comparison, in 2022, there were 187 social proposals that received a 22% median favorable vote and 65 environmental proposals that received a 27% favorable vote. SB observes that the "vote outcomes continued the downward trend first observed in 2022."


What were these 2022 trends that continued into 2023? First, 2022 saw the beginning of an increase in the number of shareholder proposals submitted for a vote, a change that has been widely attributed to guidance issued by Corp Fin in Staff Legal Bulletin 14L regarding Rule 14a-8 that had the effect of making exclusion of shareholder proposals—particularly proposals related to environmental and social issues—more of a challenge for companies. Apparently, that led many shareholders to take the opportunity to press for more changes at companies. Nevertheless, the prescriptive nature of many of the proposals, especially climate-related proposals, prompted many shareholders, including major asset managers to vote against these proposals. That was trend number two.

For example, in this paper, BlackRock Investment Stewardship—BlackRock is reportedly the largest asset manager worldwide—provided its perspective on climate-related shareholder proposals that were coming up for votes during the 2022 proxy season. In 2021, BIS "supported 47% of environmental and social shareholder proposals," but would support fewer proposals in 2022. According to BIS, climate-related shareholder proposals submitted in 2021 focused on "material business risks" or requested reports providing information that would be useful to investors to help them assess a company's "ability to generate durable long-term value." BIS considered these proposals "to be consistent with long-term value creation" and not undue constraints on management's strategic efforts to create shareholder value. In the view of BIS, however, many of the proposals in 2022 were "unduly constraining on management or were overly prescriptive as to information sought or timeframes. Others failed to recognize the progress made such that companies had largely met the ask of the proposal." In voting on behalf of its clients, BIS said that it "supported 24% of E&S shareholder proposals in the U.S. [in 2022], down from 43% [in 2021], reflecting how these factors made these proposals less supportable in the 2021-22 proxy year." BIS attributed the change to SLB 14L, which BIS maintained "broadened the scope of permissible proposals that address 'significant social policy issues,' [resulting] in a marked increase in environmental and social shareholder proposals of varying quality coming to a vote." (See this PubCo post.)

Director elections. According to SB, average support for director nominees (94.6%) was only a tenth of a percentage point higher in 2023 than in 2022 (94.5%). Interestingly, SB linked the vote for director nominees to say-on-pay results: looking back over five years, support for directors was 6 percentage points lower at companies that received a say-on-pay vote below 50% in the prior year (90%) as compared with companies that received say-on-pay support over 70% (96%). Average support for women directors was 95.2%, a 1.3 percentage point decline from 96.5% in 2019. Support for women directors was eight-tenths of a percentage point higher than for men (95.2% v. 94.4%) in 2023.

Equity plans. Among Russell 3000 companies, 617 submitted proposals on equity plans in 2023, 104 more proposals than in 2022. Eight of 617 proposals did not receive a majority vote compared to two that were voted down last year. What's more, average support was somewhat lower in 2023 at 86.7% as compared with 89.4% in 2022. SB remarked that the equity proposal failure rate of 1.3%, along with the rate of ISS "Against" recommendations on 28% of proposals "were both the highest observed over the last ten years." ISS "Against" recommendations were as low as 18% in 2020. Examining the impact of ISS recommendations in 2023, SB found that, for companies in the Russell 3000, the average favorable vote was 20 percentage points lower (72%) for companies that received an "Against" recommendation from ISS as compared with companies that received a favorable recommendation (92%).

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