Proxy Proposals: ISS And Glass Lewis On What To Expect This Season

Expect proposals relating to employee diversity and indirect lobbying and political spending against climate initiatives.

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Both ISS and Glass Lewis, the two largest proxy advisors serving institutional investors, expect an uptick in ESG-focused shareholder proposals this spring. Courteney Keatinge, senior director of ESG research at Glass Lewis, says the SEC allowed companies over the past four years to omit a large number of ESG proposals. No longer is this the case, she says, with the SEC “now allowing the ESG proposals to go to a vote.

“While we didn’t see an increase in the aggregate number of shareholder proposals last year, we did see shareholder support for environmental and social resolution skyrocket,” Keatinge says. “Environmental proposals received an average 41 percent support in 2021, up from 31 percent the previous year.”

She adds, “I just don’t see support for E- and S-related proposals going down this year or in the near future either. So many investors are more fully incorporating E and S considerations in their voting and view it as part of their mandate to support many of these initiatives. Whereas some proposals weren’t ‘slam dunk’ in past proxy seasons, we view them as more likely to pass this go-around.”

Likely to be among these are proposals relating to employee diversity and indirect lobbying and political spending against climate initiatives. “There’s significant appetite for additional reporting on diversity, with proposals likely this year promoting racial equity audits offering a more objective assessment of a company’s effectiveness in combating system racism,” she says. “Investors also want more transparency around corporate political spending and lobbying that may be working against companies’ own initiatives.”

Come proxy time, Keatinge also expects to see an increase in shareholder proposals seeking greater lobbying transparency. “Boards need to make sure the companies they serve are not investing in lobbying efforts that serve to hinder or that contradict their company’s stated goals and values,” Keatinge says.

Driving the push for lobbying transparency is concern that companies stay true to the principles they espouse publicly when wielding political influence. “A company may say they believe that climate change is real and ‘here is what we’re going to do about it,’ but in the background are they doing (other things) to forestall these goals?” says Marc Goldstein, head of U.S. research at proxy voting advisory firm ISS. “For instance, are they quietly donating money to trade groups that take a position in opposition to the company’s own stated position?”

But energy companies aren’t the only ones under the microscope. Shareholder proposals popping up at banks and trading companies that loan money or invest in ways to help companies build new coal plants or pipelines have made headway in Europe and Japan and are “fast becoming a global movement,” he says.

Altogether, E and S proposals that receive majority shareholder support have risen year-over-year, a situation Goldstein expects will be the case again this proxy season. “Last year, there were 36 shareholder proposals receiving a majority vote, mostly at S&P 500 companies, which is higher than the 21 that received a majority vote in 2020,” he says. “While 36 is objectively not a huge number, the growth rate is impressive.”

More important is the pressure the growth rate imposes on boards to avoid losing a majority shareholder vote. “Boards don’t want ISS to be doing a responsiveness analysis where they may lose points for partial implementation, prompting them to get in front of these issues now, draw up a proposal and give investors some of what they want, like enhanced disclosures before the annual meeting,” Goldstein says.

Like Keatinge, Goldstein also expects an uptick in shareholder proposals involving racial equity audits. “Proponents are expanding beyond intentional discrimination issues to disparate impact or unintentional discrimination, when a company’s policies and practices appear to be neutral but actually have an adverse disproportional impact on a protected group,” he says. “To make sure this isn’t the case, we expect an increase in proposals requesting the hiring of a third party to conduct an audit.”

Although these proposals generally ran out of steam last year, they may gain added traction in this year’s proxy season. “There’s the potential for reputational damage if a disparate impact is revealed and the company was blind to this fact,” Goldstein says. “That can motivate customers not to do business with the company, employees to work elsewhere and investors to perceive the organization as damaged goods and decide not to include it in their portfolios.”


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