The Rise of ‘S’ and ‘G” Shareholder Proposals

Proposals around social and governance issues continue to take the spotlight with 71% of all proposals submitted in the first half of 2022 in the “S” and “G” categories. Freshfields provided a comprehensive review in the 2022 proxy season trends and insights report.

• DE&I: Huge jumps have been made since 2020 in companies self-reporting their workforce data - a 234% increase in recruiting measurements by gender, race and ethnicity and 379% increase in disclosing promotion statistics. Proposals around setting targets to increase representation, communicating race and gender pay gap results and DE&I initiative scorecards are also common. One large company recently received 54% support for a civil rights and racial equity audit proposal.
  
  
• Human Rights: An increased focus on human rights issues such as forced labor within the supply chain and doing business with governments that are complicit in crimes against humanity have led to new proposals. Sturm Ruger received 69% support for an independent assessment to review the company’s impact on human rights with recommendations for improvement.
  
  
• Worker Rights: Comcast, Tesla and Amazon received proposals that range from workplace conditions and safety to disclosures into independent investigations of sexual harassment. Activision Blizzard received 63% support with a proposal to release reporting of their workforce harassment and discrimination prevention practices.
  
  
• Other Social Proposals and Governance: Topics such as misinformation, company lobbying, political expenditures, weapons financing and reproductive health access also made the list with varying levels of minority support. Compensation, board composition and overboarding are frequent governance related areas of shareholder interest.

There are several trends led by both institutional investors and activists that will continue to shape future shareholder proposals and influence voting:

• The emergence of anti-ESG groups who argue that companies are overly focused on issues that do not translate to better financial performance and ultimately, are not in the best interest of investors. It is unclear how this sentiment may impact an industry’s attention to ESG activities in the future.
  
  
• Holding individual directors accountable by communicating the circumstances in which they will vote against committee chairs and individual directors.
  
  
• “Vote No” campaigns against management proposals are on the rise and auditor ratifications which used to be a “slam-dunk” are starting to see an uptick in votes against auditing firms due to conflict-of-interest concerns, excessive fees and long-standing partnerships.
  
  
• New universal proxy rules go into effect September 1, 2022 and could make it easier for individual directors to be voted out since all directors, both those presented by the company and dissidents, will now be on each proxy card.

There is clearly an expectation among investors that management and boards now have additional obligations with social matters that impact their employees, customers and the world and shareholder proposals can be an effective way to gain attention on the topics that matter most.