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A record-breaking, angst-filled proxy year

There has never been a proxy season like 2021.

Annual meeting


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There has never been a proxy season like 2021. As annual meeting season hit this year, shareholders were collectively louder as a group and more willing than ever before to say that they disagree with where companies are heading.

Here are the numbers:

  • Proxy Preview counted a record 34 shareholder proposals that won majority backing this year, shattering last year’s record of 21 proposals that received majority support. This year, 17 shareholder proposals won at least 70 percent support, while only two votes last year crossed that threshold.
  • Support for all ESG proposals trended higher, averaging 32 percent on social proposals and 37 percent on environmental proposals in the Russell 1000, where 111 votes already have been cast this year, according to Semmler Brossy.
  • Corporate shareholders also were more disgruntled with executive pay, the firm said. In the Russell 1000, 56 companies had a majority of shareholders oppose executive pay compared to 43 companies at this time last year. For 18 companies, that failure was tied to COVID-related actions.

These broad trends are coming to light just about a month after activist investor Engine No. 1 succeeded in its proxy fight to replace several Exxon board members, notching a new bar for ESG corporate activism. And there are likely to be even more ESG-theme proxy fights going forward as traditional activist firms such as Elliott Management and Jana Partners, and more ESG-specialized activist firms such as Inclusive Capital Partners and Impactive Capital, apply traditional governance-based strategies to environmental and social issues, according to an Insightia report this week.

The increase in big vote tallies are a sign that large asset managers are more willing to vote against management than they used to be.

Is it a sign of the times? The effects of the global pandemic were clearly front-and-center for companies and investors. The resulting stimulus into green sectors and social programs made it more apparent that some companies with misaligned strategies might be missing out on future opportunities.

But also, and importantly: The increase in big vote tallies are a sign that large asset managers such as State Street, BlackRock, Fidelity and Vanguard are more willing to vote against management than they used to be. It’s often mathematically impossible for a shareholder proposal to get majority support without the backing of a couple of those firms.

"The mainstream investment world has really accepted the premise that climate change is a big problem for business and there are other issues that are just fundamentally important, like diversity," said Heidi Welsh, executive director of the Sustainable Investments Institute, which tracks proxy voting issues. "The main change we’re seeing is that the large mutual funds have decided these issues are material and are voting accordingly."

Proposals about climate garnered more support this year, but so did those about the pandemic, racial justice, corporate lobbying, diversity and sexual harassment policies, Welsh said.

Squeezing the activists

And while investors seem to have finally embraced shareholder proposals as a critical tool, it’s possible that there won’t be another proxy season like this. A late 2020 Securities and Exchange Commission rule change enacted by the Trump administration will make it harder for many investors to file proposals going forward, increasing the value of stock they need to hold to send a campaign. Investor groups earlier this month filed a lawsuit that seeks to vacate the rule, amid concerns it makes it tougher to raise new issues with companies and quiets the small shareholders who historically have been first to raise these issues.

That leaves a few questions for the larger asset managers backing shareholder proposals with more gusto. Will big investors start submitting their own proposals if smaller investors cannot? Will they adopt more activist strategies that bring concerns right to the board and vote against more director elections? Or will even more of the proxy process just move behind closed doors?

Shareholder voting and engagement with companies has been advertised as a key part of most ESG strategies that invest in public companies. Asset manager track records on voting are a potentially easy way for their clients to understand how seriously their manager thinks about ESG, and equally an opportunity for the asset managers to prove to clients that they are voting their stated values.

Shareholder proposals don’t necessarily need majority support to have an impact — boards often take seriously any proposal that gets a vote over 20 or 30 percent. But the proposals are often somewhat limited in what they can ask for — usually a change in policy, a disclosure or a report.

The high vote tallies this year are a sign that shareholders have found their voice on ESG, but bigger questions remain on how companies and shareholders got so far apart on these issues in the first place.

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