Proxy Season 2023: Key outcomes and implications for boards
While ESG remains a hot (and controversial) topic, this year’s proxy season delivered a mixed bag of results. As Diligent Market Intelligence explores in their new report, Proxy Season Review 2023, many activists had a successful season, but the number of new campaigns and players ultimately fell short of the anticipated surge.
According to the report, produced in association with Olshan Frome Wolosky and Morrow Sodali, the declining support for global ESG proposals stems from ongoing market volatility, growing anti-ESG sentiment and changes in the makeup of proposal types. Nevertheless, U.S. climate proposals saw a higher pass rate than last year, and support for environmental proposals at Europe-listed companies increased.
“The 2023 proxy season functioned as a test drive for the universal proxy card in the U.S. market, with the results favorable for activists. Although market volatility made for a quieter proxy season than expected, boards and management teams would be wise to plan for elevated levels of activity in the fourth quarter and 2024 as activists gain confidence," writes Josh Black, editor-in-chief of Diligent Market Intelligence. "Although falling support for ESG proposals has been much publicized, targeted campaigns are still gaining the favor of institutional investors.”
Read on for more highlights from the report.
Highlights from Proxy Season 2023
Activists are focused on financials
As activists looked to maximize investor returns amid depressed markets, the number of capital structure, return-cash-to-shareholder and operational demands increased by 39.3%, 25.9%, and 17.4%, respectively, compared to last year.
Activists also racking up more board seats, gaining 214 at the end of June globally, compared to 201 at the same point two years ago.
The growing influence of activists may also be behind the decline in M&A and divestiture demands, which were down 14.7% and 8.7%, respectively, compared to 2022. Many companies may be hesitant to move forward with deals that could be challenged by antitrust enforcers.
Investors are sharpening their focus on ESG
With the rhetoric around ESG growing ever more political and divisive, support for ESG-related proposals has been mixed.
Globally, just nine environmental and social shareholder proposals won majority support, compared to 36 in the first half of last year.
But it’s not all bad news for ESG: The 19 climate change shareholder proposals subject to a vote at North America-listed energy companies had an 11.1% pass rate, up from 8.3% in 2022.
Meanwhile, the number of remuneration proposals subject to a vote at U.S.-listed companies in the first half of 2023 rose to 46, compared to 38 throughout 2022. A third of proposals pushing for investor approval of severance payments won over 40% support this season.
Directors are facing increased scrutiny
Today’s directors are no strangers to shareholder and stakeholder scrutiny, which has largely characterized the last several years, especially as ESG discussions have grown more intense.
This trend of tightened scrutiny continued for the third year in a row, with shareholder support for global director elections dropping to 95.6%, compared to 96.4% and 96.1% in 2021 and 2022, respectively.
Glass Lewis and Institutional Shareholder Services (ISS) also endorsed fewer S&P 500 director election and re-election proposals compared to those for FTSE 350 directors in the same period (93.4% and 97.1% versus 98.7% and 99%, respectively).
What boards can learn from the 2023 proxy season
“I think when the dust settles from this proxy season, it will be important to review what did and didn’t work from a process perspective,” Michael Verrechia, Managing Director at Morrow Sodali, writes in the report.
So what should boards take away from the mixed results of this year’s proxy season?
Verrecchia emphasizes the importance of effective communication with each shareholder constituency, which requires an understanding of different types of shareholders and how they best digest the information presented to them.
When shareholders oppose an announced deal, he suggests the following steps for companies:
- Understand how the deal announcement and any public opposition may have changed the makeup of your shareholder base
- Conduct a forensic shareholder profile analysis early on, even before the deal is publicly announced
- Evaluate how the potential change in profile will impact your solicitation strategy to achieve a positive outcome for the client
To learn more about how this year’s proxy season will impact companies, download Diligent Market Intelligence’s Proxy Season Review 2023 today.
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