Green and social topics top shareholder concerns: report

Proxy access remains the biggest priority in 2017, writes Barry Critchley.

Get with the program, or you will face the consequences.

That’s the advice to issuers from D.F. King & Co., a company that provides proxy solicitation and corporate governance consulting services to North American institutions.

“Exactly. You have to or you will be left dealing with these issues,” said Zally Ahmadi, director of corporate governance at the advisory that recently released The Debriefing, its review of the 2017 proxy season, that largely reflects U.S. developments. “The issuers are slow to adopt some of the changes until they see the repercussions from their peers having to deal with them.”

For 2017, “there is a such a huge spotlight on environmental and social issues,” in the U.S. because of the interest in those matters by institutional investors, Ahmadi said. As a result, “we are ensuring our clients are ready to speak about these matters.”

The report details a record number of environmental and social issues (E&S) filings this year, including climate change, sustainability disclosure, gender pay equity and board diversity. Those four issues accounted for 32.6 per cent of the 500 top 10 shareholder proposals put up at annual meetings.

Of those top 10 proposals, only one — simple majority voting — received average support of more than 50 per cent.

However, sustainability/ climate-related shareholder proposals put forward at a trio of energy exploration companies’ annual meetings all got over the line, despite opposition from the board.

Proxy access, an arrangement where certain shareholders have the right to make their own director nominations, however, remains the single largest issue in 2017 with 111 proposals. The current practice in the U.S. is to allow up to 20 per cent of shareholders that own at least three per cent of the shares for at least three years to nominate up to 20 per cent of the board.

While only about half of the proxy access proposals went to a vote, none of them passed. However, proxy access will become less of a priority in the U.S. as 60 per cent of the S&P 500 companies have such an arrangement in place.

“That allows for other topics to come into place,” said Ahmadi, noting issues such as the skill sets of directors, the diversity of the board and the “refreshment processes” companies have in place are increasingly coming to the fore.

Proxy access arrived in Canada this year when proposals were put to shareholders of TorontoDominion Bank and Royal Bank of Canada. Enough support was received for the TD plan but not enough for Royal’s initiative. “We expect to see more of that this year,” said Marcus Campbell, D.F. King’s vice-president of operations said.

As for Canadian matters, Susy Monteiro, the advisory’s senior vice-president, said the issues tend to lag those south of the border by a couple of years.

“The compensation related issues are very important (here),” she said.

As for the decline in proxy contests, Ahmadi said it reflects the effects of shareholder engagement. “The board is far more engaged with the largest institutional shareholders; they are recognizing that the institutions are more willing to listen to what an activist has to say,” she said, adding activists “want to approach the board and have them make the changes rather than engage in a proxy contest.”

Other interesting U.S. developments include: 175 virtual or hybrid meetings were held in the first half of this year; the plans by FTSE Russell and S&P Dow Jones to restrict the ability of companies with multiple class share structures to be included in their popular indexes (existing inclusions would either be grand fathered or given time to make changes); and the decision by State Street and BlackRock to enforce their position on gender diversity at the board.

The board is ... recognizing that the institutions are more willing to listen to what an activist has to say.