The 2023 Shareholder Meeting Season to date has been “one for the books” for sure – and we are happy to report that most of the predictions and early warnings we posted in late 2022 and early 2023 were very much on the money:
While there has been a modest return to in-person meetings, as we expected – notably at Berkshire Hathaway, which drew an all-time attendance record of 44,000 happy investors, with the A-shares now over the $500,000 mark - and a few upward blips in Texas, Georgia and parts of the Mid-West where what we call the “Y’all come tradition” is still strong, Virtual Shareholder Meetings have become the clear method of choice for most companies, with no end in sight. Of the 506 Meetings where our Team of Inspectors served through June 30 only 86 – or 17% were in- person-only, up a bit from the 15% last year. And most of them were at very small companies, with no shareholder proposal or “pressing issues” and no history of shareholder attendance, so a small in-person meeting – in a small conference room – made complete sense, economically.
VSMs got a very big boost, we think, from the top Meeting horror-story of the year – the scary disruption at the Walgreens Meeting by a devilishly clever invasion of hooligans with bullhorns who hid in a closet overnight and jumped out of the curtains – right behind the Chairman, CFO and the GC.
Sadly, there’s been only a tiny interest in Hybrid Meetings – which will ultimately catch on, we still predict, since they really do offer issuers – and shareholders too - the “best of both worlds.”
An interesting tidbit from Broadridge - only two states that prohibit Virtual-only Meetings remain – South Carolina and New Mexico – neither of them Meeting Meccas.
Our warnings on “Meeting Congestion” were borne out in spades: According to ISS Corporate Solutions, Inc. (ICS), an astonishing 41 percent of all Russell 3,000 companies held their annual meetings in May. There were 124 Meetings on Wednesday, May 17th, another 124 on Thursday May 25 - which ICS said marked the “peak” of the season – following 120 Meetings on Thursday, May 18, 102 Meetings on Wednesday, May 24 – followed by 95 Meetings on Thursday, June 8 – not to mention the remaining 760 May Meetings that occurred mostly on the nine Mondays and Tuesdays - averaging almost 80 Meetings per day - so yes, meeting congestion in spades.
We are especially pleased to report that almost all of the 506 Meetings our Team of Inspectors handled in May and June – and the smaller numbers we handled in the earlier months as well - went down smoothly, and without incident – and that the few glitches we encountered were quickly put on the right track: Evidence, we say, that issuers did listen to our advice to start planning early - and to be sure they got the “A-Team” for their companies in terms of printers, mailers, tabulators, solicitors and advisors, VSM support managers – and savvy Inspectors.
Equally cheering, the number of companies we Inspected that had to have a second, and sometimes a third Meeting adjournment for lack of a quorum dropped from over a dozen re-runs last year to a mere handful in 2023. (See our tips on avoiding this, and dealing with it effectively, should the worst befall you, further down.)
On the shareholder proposal front, the number of proposals submitted to a vote in 2023 rose slightly – from 959 to 962 according to Proxy Analytics. E&S proposals jumped from 288 in 2022 to 333 in 2023 to date. But Anti-E&S proposals rose from 55 last year to 96 in the first half 2023: Without the surge in Anti-E&S proposals the total number would have dropped – from 962 to 921 – well below the 2022 number.
Meanwhile, and in another notable trend thus far in 2023, dissent over executive pay appears to be decreasing, after reaching historic highs in 2022: An ICS analysis of say-on-pay voting outcomes January 1 to May 17 found just 43 instances, or 4.5 percent of the overall total, where voting support was less than 70 percent, “a generally accepted key measure of significant investor dissent.” By comparison, the figure during the same period last year stood at 72 proposals and 7 percent of the overall total, respectively, and 66 and 6 percent in 2021. Moreover, through May 17, ISS-ICS is tracking just 15 failed say-on-pay votes compared with 27 in the same period last year and 31 in 2021.
Oddly - and wrongly, we think - the ISS-ICS analysis noted that “The trends we’re seeing thus far in 2023 [a big drop-off on failed says on pay and fewer proponent wins on ESG and Anti-ESG matters] suggest a tapering of scrutiny from shareholders that has, as our numbers show, been very pronounced over the past two years.”
Rather, we would say, and as we predicted in 2022-23 - and as the report actually noted in passing - “It is also likely indicative of companies positively responding to recent concerns by actively engaging with their shareholder base and incorporating meaningful changes to their compensation programs” – rather than seeing shareholder proposals succeed or get embarrassingly high numbers – while some of their own proposals, and recommendations to vote NO, go down to defeat.
Also, we’d note, many companies did a much better job than usual in explaining their reasons for opposing shareholder proposals when they were unwilling to “settle” (usually by agreeing to issue yet another set of “special reports”) – AND – in clarifying, and debunking Anti-ESG initiatives, most of which, we were happy to note, did indeed fall under the thresholds for resubmissions. (See some tips on this further down.)
Lastly, we’d note again that the biggest – and smartest institutional investors have been paying added attention to shareholder proposals that are “over-prescriptive” considering corporate actions to date on the issues at hand and voting NO with this in mind.
On the Activist Investor scene, “campaigns” were up by 13% - from 178 to 196 in mid-year 2023. Settlements were also at an all-time high, however, with As You Sow reporting over 200 on their end.
Notably, there were NO really big-company proxy fights that did not settle before the Meeting dates. Campaigns of all kinds, involving companies valued at $1 billion or more, fell by almost 4% globally. But note well - campaigns against smaller companies jumped 47%, the Bloomberg data show. And, a surprise, the jump was largely driven by hostile actions in Canada, which saw a surge in campaigns to 42 from nine last year, Without the jump in Canada, activist campaigns would be down, globally, year-over-year,
Also on the Activist Investor scene, many commentors are generating more heat than light, we think, about the effects of the Universal Proxy Card (UPC): “Some companies and boards are more eager to wrap things up or make change proactively to avoid the cost and distraction of a fight, but also because of a perception that with universal proxy, more cards are stacked against you,” Elizabeth Morgan, a partner at law firm King & Spalding said, in a recent interview with Bloomberg reporter Crystal Tse – two statements that are undeniably true. But please note - it is the perception that has been driving the decision – AND, that while yes - “more cards are likely to be stacked against you” with UPC than otherwise – that does not necessarily mean that management will lose.
Our friends at TAI (publishers of The Activist Investor newsletter) seem to be making a similar mistake in tracking what they call “Wins Under UPC.” Here too, as we’ve written before, it is the strength of the arguments that are the key to winning or losing – and not the UPC itself.
Perhaps the most notable, and potentially threatening new trend has been the big increase in “swarming” by Activist Investors: As the Bloomberg article noted without further comment, “Salesforce Inc., with a market value of $204 billion, had to deal with a swarm including Elliott Investment Management, Starboard Value LP, Jeff Ubben’s Inclusive Capital and Third Point LLC — before taking steps to avoid a board fight. Salesforce appointed three new independent directors, including ValueAct Capital Management Chief Executive Officer Mason Morfit.” And in Canada, “Algonquin Power & Utilities Corp. and the contested takeover by Ritchie Bros Holdings Inc. of IAA Inc. attracted more than half a dozen activists.”
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