Reading The Runes

Key Themes from Proxy Season

Reading The Runes

With proxy voting season under way across most markets, it is worth taking a look at the most prominent themes emerging from annual general meetings (AGMs), many of which are highly relevant from a stewardship perspective.

In the US and Europe, shareholders are broadly singing from the same hymn sheets, with governance issues high on the agenda. Unsurprisingly, remuneration remains an area of focus, whether quantum of pay, a lack of alignment with investors or poor disclosure. Indeed, in the US we have seen a number of ‘say-on-pay’ proposals voted down, perhaps most notably at Walt Disney Company – where 52% of investors at the beginning of March rejected a non-binding advisory resolution on its executive compensation.

Remuneration remains an area of focus, whether quantum of pay, a lack of alignment with investors or poor disclosure.

In Europe, pay issues have rumbled on as well, but with some glimmers of change. One of the most-talked-about cases has been UK engineering firm Weir-Group, which received a clear thumbs-up (and commendation from major global investors, such as Norway’s sovereign wealth fund Norges Bank) for a new simplified remuneration structure – setting a potential precedent for other firms. The new framework has jettisoned the long-term incentive plan and replaced it with restricted stock units, but with a reduced quantum and longer vesting period.

We have also seen many cases of so-called ‘over-boarding’, where directors take on an undue number of board commitments – often at large complex firms where meaningful contributions require significant time and energy. Board diversity is also a theme, and here we find more grounds to be cheerful. Looking at the US, data by our proxy adviser Institutional Shareholder Services show the percentage of female new directors has touched an all-time high of 35% for companies in the Russell 3000, and 39% in the S&P 500. In line with the trend we’ve observed in recent years, social and environmental proposals have also featured strongly. In the case of the latter we’re seeing expectations around climate-change disclosure rise fast and remain highly supportive of greater transparency here.

Of course, these are only a subset of the issues we’ve seen discussed at AGMs, but nonetheless ones of significant consequence. As always, when provided with proxies, we vote with our clients’ long-term economic interests in mind.

Latest stewardship activity: May

  • On the collaborative engagement front, we recently held our first calls with companies identified in a PRI-coordinated initiative on cybersecurity. With regards to corporate tax responsibility – where we are also part of a PRI effort – we will shortly send out letters to the targeted companies, many of which belong to the healthcare and IT sectors. Meanwhile, we are about to have our first call with collaborators over engagement on water risks in the agricultural supply chain.
  • We have also participated a recent ESG seminar hosted by S&P in London, where a number of important topics were covered, including: the Sustainable Development Goals (the attainment of which is estimated to require US$100 trillion in debt financing by 2030); the High Level Expert Group on Sustainable Finance (with a focus on regulation and clearer taxonomy around sustainability); externalities (the routes through which companies come to recognise these); and the increasing role of big data and artificial intelligence in an ESG context.
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