Proxy Season 2022 Highlights ESG Concerns, Board Scrutiny, Greater Disclosure

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After a 2021 proxy season that saw record support for shareholder proposals on a variety of environmental, social and governance issues, corporate board members should expect 2022 to feature more of the same.

Recent analysis from The Conference Board predicts that in 2022 boards will experience greater pressure from shareholders who will be more willing to take their shareholder proposals to a vote and less willing to vote to reelect board members who oppose areas of governance that they seek to change. The analysis, completed in cooperation with ESG analytics firm ESGAUGE, Russell Reynolds Associates and Rutgers University’s Center for Corporate Law and Governance, identifies six key areas that will command the attention of investors this year and present challenges to most corporate boards:

• Expect an increase in the number of environmental and social shareholder proposals submitted and taken to a vote with greater support.

• Expect an increase in human capital management related proposals that focus on diversity and race, gender and economic disclosures. There may be greater calls for racial equity/civil rights audits as well.

• Expect companies in all industries to be challenged on climate change related issues with calls for greater disclosure.

• With the 2022 mid-term elections this year, expect more proposals seeking disclosure on political contributions and lobbying activities.

• Expect more shareholder proposals seeking governance changes including supermajority vote requirements and calling special shareholder meetings to be taken to vote.

• Shareholders will apply greater scrutiny to re-electing directors and approving executive compensation plans.

These finding suggest that investors are making a concerted effort to wield greater influence in company decision making, and that boards may have to consider adjustments to how they engage with their shareholders.

It will be up to each board of directors to determine whether the shareholder proposals they receive reflect the concerns of the majority of their company’s shareholders or a fringe minority. Deciding whether to oppose or ignore the concerns of the majority of the company’s investors may be a strategic decision each board will have to make. Such decisions come with consequences.

Last year’s proxy season showed that large institutional investors like State Street and BlackRock were more willing to broadcast that they would vote against the reelection of directors that stood in the way of diversifying boards. Smaller investment groups agreed, which reinforced that message. Going against the concerns of your largest shareholders is a difficult undertaking. Additionally, there was evidence that many different investment groups were willing to band together to push out directors that were not in favor of certain environmental and social issues. The ability of groups of small investors to form coalitions quickly is a relatively new dynamic that boards will need to consider before entertaining a proxy fight.

In 2022, many of the shareholder proposals will be attempting to build on the success or increasing support that similar proposals received in 2021. If a shareholder proposal filed at a company received higher support levels than it did the previous year, boards will have to determine if continuing to oppose it will be counterproductive and harmful to the board’s ability to lead in the future.

In the current environment, boards may want to consider that a more collaborative relationship with shareholders could be more productive and in the best interest of everyone involved. Similar to what diversity is showing us, good ideas can come from anywhere—even from people with different backgrounds and perspectives than those who are primarily in charge. While it will take some adjusting, finding ways of collaborating with different groups of shareholders for the betterment of the company should be considered in the best interest of the shareholders. It remains to be seen if opposing a constant stream of shareholder proposals is in the best interest of the shareholders—or the board members.

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