- May used to be the “old April” for shareholder meetings - but June tied with May this year in our own count, with June meetings rising an astonishing 32.5% vs. 2021. Readers have been asking, “What’s going on here, and why? Ten years or so ago, the end of April marked the official end of the Annual Meeting Season. Most companies’ fiscal year was (and still is) the calendar year. And back then, everyone had time to close their books, write their Annual Report, file, print and mail proxy materials and conclude their AGM by the last business day in April, albeit with an all-hands effort and a fair amount of rushing. Those days are long gone and never to return we say. And why? Mostly, it’s because of the huge number of new proxy rules and regs that require much more detailed reporting across the board - coupled with the even bigger growth of so-called ESG matters that are floating around out there - every day - where even if you have no ESG proposals on your own ballot, you still have to make sure you are telling your story in excruciating detail to stay in the good graces of the Governance Gurus - who have multiplied like flies on a pie.
There’s another little-remarked factor in the works here as well: In the old days, as soon as the books were closed for the year, a relatively small team of seasoned veterans would assemble in a big conference room to do the scoping, drafting and pulling together of all to myriad “pieces” that go into a successful AGM. Today, however, the cast of characters tends to be much larger - and, ironically, the average level of experience - and subject-matter expertise - tends to be a lot lower…Making things tougher yet, many key players are working “remotely” from the old time “War Room” and thus, are a lot harder to round up in one place at one time.
- Another big trend we see - and no big surprise in light of the foregoing: Issuers are enlisting more and more professional helpers in lieu of yesteryear’s totally do-it-yourself Meetings. What we call the “Old-School Masters of Shareholder Meeting Matters” are fewer and further between by far - even as the complexity level has gone up hugely. No surprise that issuers are leaning more heavily than ever on outside counsel, proxy advisors, meeting-planners and technology suppliers - where in many cases, sad to say, the “helpers” are relative novices to AGMs themselves. (Most of the Meeting Bloopers that we’ll outline further down are essentially “rookie errors.”)
- Proxy packages have been gaining major weight - at least in avoirdupois. We were startled when we went to move a stack of proxy packages to make room for more by how much more bulk there was this year vs. last. Remember the old days (a mere 10 years or so ago) when the trend was to ditch the glossy AR - and maybe even have the 10-K and a Proxy Statement - all printed on tissue-thin paper - as the entire “proxy package”? Those days are gone too, thanks to the need to tell our ESG stories in excruciating detail, but in what we hope will be a more compelling way… But what we really should be asking, in our view, is whether all those “weighty pages” are really adding weight to the discussion - and to the understanding of the key issues at hand. We think not. And we think, as we have been writing for over ten years now that a complete re-thinking of the entire “proxy package” - with a view toward simplification - and shortening is long overdue.
- Despite what you may have heard or read elsewhere, VSMs are NOT “waning:” As we write this in early July, our sister-company, CT Hagberg LLC, has 525 Meetings on its books where Team members have served or are scheduled to serve in 2022, to date, as Inspectors of Election. Only 84 meetings - or 16% - are in-person meetings. We DO expect the number of in-person meetings to creep up as Covid cases decline - especially at very small companies when no one usually comes anyway. We also note a smallish number of companies that feel - with more than a small degree of justification - that an in-person meeting, in a somewhat out-of-the way location, is much easier to keep “in control” in every way. We also see a fairly large number of companies where the Chairman actually LOVES the in-person experience, and who will likely revert to in-person meetings as soon as the Covid-coast is clearer.. But even the most skeptical governance gurus now recognize the huge cost savings that companies can achieve with a VSM - coupled with the potentially infinite “availability” of a VSM to shareholders and other interested parties vs. in-person-only attendance. Most interestingly, this season a shareholder proposal from an activist investor group - to require that there be a way for shareholders to attend Shareholder Meetings virtually, passed handily.
- Here’s another myth that’s been making the rounds - maybe due to wishful thinking - that ESG - or, by some accounts, mainly the “E” is losing steam with investors. Here are a few excerpts from Boston Trust Walden’s nifty end-of-season report that should quickly set the record straight:
- “According to ISS, among the more than 650 proposals filed this proxy season were a record breaking 531 environmental and social-related proposals, surpassing last year’s historic 416. Notably, the SEC approved the omission of just 9% of proposals from proxy ballots, a substantial decrease from the 17% omitted in 2021.
- “Tying the record previously set in 2021, 34 resolutions to date have received majority shareholder support. The top issues garnering majority votes — climate change/environment, equality/human rights, and public policy influence — tell a story. As the country continues to navigate challenges posed by a changing climate, systemic racial injustice, and political gridlock, these ballot results make clear that investors increasingly recognize the connection between ESG issues and long-term economic and societal prosperity.
- “In 2022, more than 70% of the resolutions we filed were withdrawn based on negotiated corporate commitments.
- “Climate Lobbying Transparency: Companies continue to play an outsized role in influencing public policymaking, which is why we ask companies to increase transparency on climate lobbying, and align their direct and indirect policy advocacy with the goals of the Paris Agreement. We are not alone — last season there was a groundswell of shareholder support for climate lobbying proposals (averaging 61% majority support), sending a clear signal to companies that investors are increasingly interested in this issue. Companies appear to be listening — of the 17 climate lobbying proposals filed this year, more than 80% were withdrawn based on negotiated agreements.
- “One of the most significant trends this season was the increase in proposals focused on racial equity. Twenty-two resolutions called for an independent audit of the company’s broader impacts on civil rights and/or racial equity, more than doubling the number of proposals in 2021. Importantly, average support for these proposals rose to 45% (from 34% in 2021) and 11 proposals were withdrawn based on company commitments.
- “The Rise of “Anti-ESG” [Actually, we think this movement, plus SEC actions on “bogus” ESG fund claims may have fueled the mistaken idea that somehow ESG is losing steam. P]ease note, dear readers, that the climate is literally on fire these days, with absolutely no end in sight, so the focus here is much more likely to increase dramatically rather than fade away.] There was a dramatic increase in “anti-ESG” shareholder proposals this season filed by groups seeking to compel company action antithetical to the objectives of traditional shareholder proponents. While these proposals generally mirrored those of ESG-related investor requests, the accompanying rationales soliciting support often advocated for the exact opposite. For example, in a shareholder proposal seeking an audit of corporate diversity training materials, the rationale provided focused on assessing the perceived negative impact of these programs on “non-diverse” employees, rather than how they support greater diversity, equity, and inclusion. Nearly 50 “anti-ESG” proposals were filed this season, doubling the figure from 2021, yet these resolutions generally received less than 5% shareholder support.”
- Still further re: ESG, the SEC has really toughened up its approach to issuing no action letters 0n ESG matters this year: Responsible Investor recently reported that the SEC granted no-action relief on only 15% of shareholder proposals touching on environmental or social issues so far – a total of 24 out of 159 no action requests. The article, reported by the ever diligent Corporate Counsel.net, notes that “Under President Trump’s administration, the SEC increasingly allowed companies to exclude shareholder proposals on ESG issues – particularly emissions reduction targets – using appeals to the rules around ordinary business, micromanagement and substantial implementation” – and the tide has changed post-SLB 14L…. the proposals that are getting SEC no-action relief are those that clearly violate the technical rule requirements (i.e., regarding proof of ownership) or “clearly did not comply” with SLB 14L’s micromanagement parameters. One of the major climate shareholder proponents, As You Sow, has seen a few recent wins at the no-action stage… their shareholder proposals requesting reports around companies’ Scope 3 financed emissions will make it to Travelers’ and Chubb Limited’s ballots. According to the release, Chubb and Travelers both argued that the proposals were already substantially implemented & that it was “impossible for the companies to measure, disclose, and begin addressing their financed emissions….The SEC was also unable to concur with Amazon’s no-action request regarding As You Sow’s shareholder proposal requesting a report on how Amazon’s 401(k) plan options align with its climate action goals – the proposal was deemed to transcend ordinary business matters.
- Another major and welcome trend we have been noting over the past two years - The Rise of the IRO: Thanks much to VSMs the Investor Relations Officer, and staff - who had pretty much dropped off the main Meeting Team as governance issues came so much to the fore - have been playing an increasingly important and increasingly valuable role at Shareholder Meetings. For one thing, IRO and staff - unlike most of their colleagues from the “legal department” - are usually very proficient, and completely comfortable where technology is concerned. Thanks to lots of practice during earnings calls, they are used to diplomatically handling “difficult” and sometimes hostile questions and questioners - where lawyers often “over-lawyer.” Most important, they are up-to-the-minute with facts and figures on the things that are on the minds of smart investors. So, while there are still lots of Corporate Secretaries and Governance Officers who are “Masters of the Art of the Q&A,” at most of the best VSMs we’ve attended it’s the chief IRO who moderates the Q&A period and thus, after a very long hiatus, has “reclaimed a seat” at the Shareholder Meeting table - and with the Board.
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