2021 Proxy Season Preview and Shareholder Voting Trends (2017-2020) builds on a comprehensive review of resolutions submitted by investors at Russell 3000 companies to provide insights into the new season of annual general meetings (AGMs). The data and analysis include trends in the number and topics of shareholder proposals, the level of support received by those proposals when put to a vote, and the types of proposal sponsors.
In particular, this post provides insights for what’s ahead in four key areas that promise to be the focus of investor attention in 2021: virtual shareholder meetings, environmental issues, human capital management, and board diversity.
The historical analysis across a large index of companies such as the Russell 3000 helps to plot the trajectory of shareholder demands and to gain helpful insights into the voting season ahead.
The COVID-19 pandemic is likely to make virtual shareholder meetings a matter of necessity even in the 2021 proxy season. Many lessons can be learned from the experience of the last year, and companies should ensure they adopt technologies and protocols to safeguard shareholder participation.
The COVID-19 pandemic has disrupted economic activities around the world, forcing organizations to rapidly reconsider the way to conduct their business and manage their workforce. These effects have extended to the shareholder voting season in the United States, as lockdowns and other restrictive measures on public gatherings adopted by State and local governments required to either postpone shareholder meetings or hold them virtually.
Many companies had been testing virtual shareholder meeting technologies over the last few years, and statistics on the use of this format in lieu of the traditional physical meeting show that it tripled from 2014 to 2019 alone—from 2.4 percent to 7.7 percent of all AGMs in the Russell 3000. But the number of virtual meetings surged during the 2020 voting season to a record level that was unimaginable only a few months before.
According to proxy disclosure information tracked by ESGAUGE, as of November 10, only 25 percent of Russell 3000 2020 meetings were held at a physical location and 73.5 percent were moved to an online platform (only 1.2 percent disclosed a hybrid approach, where a physical meeting compliant with rules on social distancing and gatherings was complemented by virtual attendance). The share of 2020 virtual-only meetings in the S&P 500 was even higher (81 percent).
Despite the logistical and technological challenges posed by this monumental shift, the proxy season was successfully executed. Shareholder proposal volume was in line with what The Conference Board and ESGAUGE recorded in prior recent years, and average support level actually inched up among larger companies of the S&P 500 index.
The credit goes to the prompt collaboration of the many parties involved in the process—not only companies and investors but also solicitation firms, proxy advisors, regulatory bodies, and the providers of virtual meeting technology. Proxy advisors and institutional investors, traditionally concerned that depriving investors of a physical gathering venue could impair shareholder democracy, recognized the inevitability of the shift to a virtual meeting platform and “the compelling advantages for both companies and shareholders” in the current circumstances.
The SEC provided guidance to assist issuers dealing with delays in printing and mailing proxy materials or facing the need to reschedule meetings so that they could be planned for remote attendance. Some States (including New York, New Jersey, California, and Massachusetts) restricting corporations’ ability to hold virtual meetings promptly eased regulations to accommodate these new needs and announced initiatives for legislative reform.
Insights for what’s ahead. Companies should be mindful that the opposition to virtual meetings traditionally shown by some large institutional investors and proxy advisors could resurface when the health crisis ends. In fact, the Council of Institutional Investors (CII), which has generally opposed virtual-only meetings in favor of a hybrid approach where shareholders can choose how to attend, urged companies to “make it clear that this decision is a one-off, tailored for current circumstances.”
Companies should therefore learn from “mass experiment” of virtual shareholder meetings that took place during the 2020 proxy season and apply those lessons as they begin to prepare for the 2021 AGMs. Advance planning is key. In particular, it is important for corporate secretaries and legal departments to:
- Monitor applicable State laws and stock exchange listing standards, and consider updating organizational documents to ensure the company has the latitude it needs to convene virtual meetings, adjourn them, or postpone them—whether in response to the evolution of the pandemic or the technical difficulties experienced in the remote setting.
- Ensure that any technical or administrative shortcoming experienced at the last round of meetings is properly documented, together with the solution (to be) implemented to address it in the future. Technologies continue to evolve as vendors are also rising to the occasion and making use of feedback to improve their platforms.
- Engage with investors to underscore their commitment to shareholder participation and the measures the company has adopted (or intends to adopt) to facilitate the virtual meeting experience—especially during the Q&A session. It is particularly important to ensure clarity in proxy statements and other documents disseminated to shareholders on the procedures that should be followed to attend the meeting and ask questions.