2022 January Proxy Governance Update

Table 1: Top 20 Investors Voting on Election of Director Resolutions 2018-2021

* The table has been sorted based on assets under management (AUM) from largest to smallest.

↑ indicates an average or above level of support for a given investor, and ↓indicates below-average support for a given investor over the four years.

We also include an assessment of the overall level of support from the sample as a whole, as well as a comparison of their average support in 2021, compared to the average for the sample as a whole.

As shown in the table above, the general trend has been towards greater support for resolutions to elect directors over the four years, with the overall average growing from 90.2% to 93.7%. This is reflected in examples like Vanguard, abrdn and Schroders, who have all shown increasing levels of support over the four years.

Some investors increased opposition over the past year, however. Noteworthy examples include Blackrock, Aviva and State Street, who all showed a decline in overall support for the election of directors during the 2021 proxy season compared to their four-year average. Other noteworthy examples include Legal & General, whose level of support had been rising steadily before dropping again in 2021. Public employee pension funds like OPERS and the London Borough of Camden, while showing steadily greater support over the period, showed less support than the average for the sample in 2021.

Analysis Of The Approval Of The Remuneration Report

“…a general increase in opposition during 2021 compared to 2020”

Table 2: Top 20 Investors Voting on Say on Pay Resolutions 2018-2021

* The table has been sorted based on assets under management (AUM) from largest to smallest.

↑ indicates an average or above level of support for a given investor, and ↓ indicates below-average support for a given investor over the four years.

The picture for the Remuneration Report is quite different, with a general increase in opposition during 2021 compared to 2020 (on average 81.3% compared to 83.6%), and dropping back to 2018 level years (81.3%). Noteworthy examples include Blackrock, whose overall support during 2021 (85.5%) decreased substantially in comparison to 2020 (94.1%) and in comparison to their overall average (90.8%).

It is worth noting that Blackrock’s overall level of support for Say on Pay resolutions during 2021 was greater than the average for the sample (81.3%) and the sample overall (81.7%). London Borough of Camden (47.7%) and Aviva (59.9%) showed the lowest levels of support, with the greatest support shown by Vanguard (95.5%) and CalStrs (94.3%). This shows the range of voting behaviour evident on what is often the most controversial resolution for approval at FTSE 350 AGMs.

Analysis Of The Approval Of The Remuneration Policy

“…Overall support levels amongst the sample group dropped by more than 10 percentage points”

Table 3: Top 20 Investors Voting on Remuneration Policy Resolutions 2018-2021

* The table has been sorted based on assets under management (AUM) from largest to smallest.

↑ indicates an average or above level of support for a given investor, and ↓ indicates below-average support for a given investor over the four years.

A marked increase in severity is even more evident when one looks at voting trends on Remuneration Policies proposed during 2021. Overall support levels amongst the sample group dropped by more than 10 percentage points to 69.2% from 81.5% in 2020, a marked reduction in support, with nearly every investor in the sample showing increased opposition. The only outlier here is Royal London, who showed greater support during 2021 (78.5%) than their overall average (73.5%), though it is worth noting that Royal London is traditionally quite an active proxy voter, as reflected in their low overall support for Remuneration Policy resolutions.

Concluding With Our Expectations For 2022

To conclude, UK plcs can expect continued scrutiny of executive remuneration in light of the continuing COVID pandemic. A related focus will be the management of stakeholder relations, particularly where significant numbers of staff were made redundant or furloughed because of the pandemic. As well as workforce relations, relations with shareholders, in terms of suspended dividends, and with the state, in terms of financial supports, will also be key areas of focus for institutional investors as they make voting decisions.

Together with COVID pandemic impacts, we also expect increased scrutiny of company disclosures related to climate change. This is particularly so with the mandatory disclosure for Britain’s largest businesses of climate-related risk in line with the Taskforce for Climate-related Financial Disclosures (TCFD), which comes into force in April 2022.

Diversity is also likely to be another key driver of shareholder dissent. While Board diversity at FTSE 350 companies has generally come into line with market expectations, many investors wish to see similar levels of diversity at the executive committee and direct report levels of senior management. This may prove quite challenging for some companies, though it is worth bearing in mind the purpose of this expectation. Through encouraging diversity at senior management level, the necessary pool of diverse candidates for Board seats can be formed, leading to a broader and deeper pool of potential non-executive directors in future years. Given the future dividend that will accrue to the FTSE 350 as a whole through this endeavour, it will be of mutual benefit to both companies and shareholders to work with one another to achieve this goal.

Accordingly, UK plcs cannot expect support for resolutions to appoint directors if they have not addressed the matters noted above in a manner satisfactory to their institutional shareholders. We expect scrutiny of a given company’s governance of its environmental and social impacts to increase over the coming years. Climate change, diversity, stakeholder relations, pay parity and the ratio between CEO and worker pay packets are likely to provide the substance of significant debate and differences of opinion over the years to come.