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In this update, we provide a summary of voting for the 2023 AGM season (January to June inclusive). As part of this analysis, we consider trends in proxy advisor voting recommendations to identify if they correlate with shareholder voting behaviour, with some consideration of the resolutions that received less than 80% support.
2023 is a year where we expected the triennial renewal of many remuneration policies. Here, we have observed an increase in support levels compared to the previous two years. Conversely, remuneration reports have witnessed a decline in the level of support. Director election support remains steady, with high levels of support on average. There are generally no surprises in terms of resolutions seeing less than 80% support. As previously remarked on in last year’s mid-season review, the general contenders that take centre stage in this category, remain those to approve executive remuneration and capital management resolutions such as share issuances and repurchases. The latter saw a further jump this year, surpassing the previous two years recorded.
To shed further light on trends in shareholder voting over the past six months, this update looks at:
Scope of data
The 2023 mid-season review focuses on voting at the meetings of companies on the FTSE 350 index for the period January through June inclusive. Analysis focuses on resolutions to elect directors and approve executive remuneration, as well as resolutions that received less than 80% support. The review compares results for 2023 with the same period in 2021 and 2022, to identify any interesting trends.
Time Period: 1 January to 31 June for the years 2023, 2022, 2021
Sources: Institutional Shareholder Services (ISS); Diligent Market Intelligence.
Meeting Trends
“This decrease in the number of both special and court meetings held during 2023 could possibly be attributed to reduced M & A activity, which has somewhat tempered down since hitting its peak in 2021.”
Meetings in the period under review shows a slight drop in comparison to the volume held last year. Here, it is worth noting that while there were broadly speaking the same number of Annual General Meetings in both 2022 and 2023, a notable difference was that there were less special meetings held, coupled with an absence of court meetings. This decrease in the number of both special and court meetings held during 2023 could possibly be attributed to reduced M & A activity, which has somewhat tempered down since hitting a peak in 2021.
Meetings January to June inclusive, 2021-23*
*For consistency, we have excluded meetings that were postponed or cancelled.
Key Resolution Voting Trends
In this section, we look at overall trends in the key resolution categories, namely director elections and resolutions to approve the Remuneration Report and Remuneration Policy. We assess trends in overall level of support over the past three AGM seasons, both from shareholders and the major proxy advisors, Institutional Shareholder Services (ISS) and Glass Lewis.
Director Elections
…”the proxy advisors have shown a record level of support this season compared to prior years.…”
Director Election Resolutions, 2021-23
The 2022 proxy season was noteworthy for the decline in investor support for directors. Publicly disclosed investor voting rationales have revealed that on the whole, the decline in director support was due in part to investors displeasure with the gender and/or ethnic diversity levels on the Board, over boarding concerns, as well as instances where a directors’ independence was deemed compromised. Looking at the table above, while this decline in investor support continues, the proxy advisors have shown a record level of support compared to prior years, particularly in the case of ISS.
Remuneration Report
“It is evident that the level of support for these proposals is gradually dropping, having remained steady in the two years previously.”
When looking at the average level of support for resolutions to approve the Remuneration Report, it is evident that the level of support is gradually dropping, having remained steady in the two years previously. In 2022, one factor within the Remuneration Reports was high bonus levels, driven by stronger recovery from the pandemic than had been forecasted. Remuneration outcomes in 2023 have demonstrated how Remuneration Committees have considered, amongst others, two major factors: their workforce against the backdrop of the cost-of-living crisis and other macro-economic factors; and the potential for “windfall gains”, as share awards granted during the pandemic affected 2020 came to fruition. Interestingly, investor support continues to outpace that of ISS and Glass Lewis.
Remuneration Report Resolutions, 2021-23
Remuneration Policy
“The levels of shareholder support have surpassed that previously recorded in 2021”
Remuneration Policy Resolutions, 2021-23
2023 was a year when many Remuneration Policies were being put to the vote following the regular triennial cycle. Whilst the overall level of support from the main proxy advisors continues to be subdued for the approval of remuneration reports, their support for remuneration policies has increased and we are now seeing greater alignment between proxy advisor and investor support. The higher levels of investor support could be as a result of issuers consulting with shareholders, explaining their rationale for their Remuneration Policy proposals and responding accordingly to feedback. Following this exercise, the final design of their remuneration policies, would appear to be delivering better alignment between issuers and their shareholder expectations.
Resolutions <80% Support
“Of the c.4,300 resolutions submitted to 233 meetings during January to June 2023, 83 received opposition of 20% or more, representing 2% of all resolutions proposed”.
Of the c.4,300 resolutions submitted to 233 meetings during January to June 2023, 83 received opposition of 20% or more, representing 2% of all resolutions proposed. This level is broadly consistent with the two prior years and at this low % level highlights high levels of overall support continuing to be received.
Below, we discuss the resolutions seeing significant opposition in summary terms, classifying the different types of resolutions and identifying any trends over the past three proxy seasons.
Resolutions <80% Support, 2021-23**
*Excluding shareholder resolutions.
Resolution Types
“Whilst remuneration resolutions continue to be the major category of resolutions receiving 20% or more opposition, the numbers show a downward trend indicating growing alignment on remuneration”
Classification – We have classified resolutions into broad categories. For example, ‘Capital Management’ includes authorities relating to capital increases and reductions, the issue and repurchase of shares, while ‘Routine Agenda Items’ includes resolutions to approve the annual Accounts and Reports, dividend policy and short meeting notice period.
Resolution Type***
***Excluding duplicate resolutions. Methodology - To provide the basis for a meaningful discussion, we have eliminated duplicate resolutions from the sample. These include multiple resolutions to approve mergers and acquisitions, as occurs when there are Court and Special Meetings to approve a Scheme of Arrangement. Another example are companies whose corporate structure means that they are subject to the legislative requirements of multiple jurisdictions, meaning they must submit multiple resolutions to approve essentially the same voting item. Also excluded are agenda items included purely for legal requirements, such as resolutions to continue as a going concern or Board spill resolutions. Virtually all shareholders habitually oppose such resolutions, meaning that they would skew the sample if included.
Analysis
As we note from the table above, whilst remuneration resolutions continue to be the major category of resolutions receiving 20% or more opposition, the numbers show a downward trend indicating growing alignment on remuneration. The same is true of director election resolutions which continue a downward trend. Conversely, we see an elevated level of opposition to resolutions related to an issuers’ capital management, making this the second highest category for 2023 resolutions receiving less than 80% support. 2023 saw the updated PEG guidelines coming into force, allowing issuers to seek increased authority levels for disapplication of pre-emption rights. Whilst no direct correlations can be drawn, what is evident is that shareholder support for capital management resolutions cannot be assumed.
Download our 2023 AGM mid-season review infographic, capturing the key statistics you need to know
Climate Change
Voting on climate change, where there is dissatisfaction, is primarily being addressed through opposition to the Annual Report and Accounts and resolutions to re-elect relevant Directors and we expect this to continue. Dissatisfaction can be with a given company’s progress with regards climate change and/or disclosures in this regard. With issuers embedding their mandatory reporting responsibilities under the TCFD, a focus on understanding investor requirements is key, particularly as regards to who they will hold accountable.
Specific voluntary climate-related resolutions are in a minority and have been reduced by half during the current AGM season compared to 2022. We do not expect this trend to change in Q3 and Q4. The caveat here is that this does not consider possible shareholder activism on this subject which is an ever-present possibility for those issuers in certain sectors.
Executive Remuneration
We expect to see further Remuneration Policies being presented for approval during Q3 and Q4 with ongoing remuneration consultation with shareholders and proxy advisors. With the increasing trends in support observed throughout January to June, we would expect this trend to continue for the remainder of the year, given market practice and expectations are clear.
As regards to Remuneration Reports, the consideration of the workforce experience and approach to potential windfall gains on awards granted in 2020 will continue to be scrutinised by investors and proxy advisors.
Capital Management
We expect continued focus on the updated PEG guidelines, as issuers determine whether to seek the increased limits for disapplication of pre-emption rights.
Engagement
It continues to be the case that issuers are committed to reporting and evidencing that stakeholder relations is well established. With 2023 being the triennial anniversary for a substantial number of investee companies as regards to renewing their Remuneration Policies, we could comfortably assume that the marked increase in the level of investor support for the approval of these proposals this proxy season, is due in part to the remuneration consultation roadshows and pre-finalisation engagements that companies undertook.
Proxy advisor, PIRC, has gone a step further this season with a change in its voting policy. This change titled a ‘Response to ‘significant’ vote’ expands further on Provision 4 of the UK Corporate Governance Code 2018, where a company finds itself in a situation in which a management proposed resolution has received a significant proportion of votes cast against. Currently, details of significant votes against (determined as 20% or more) and related company updates are recorded on the Public Register maintained by the Investment Association. PIRC has determined opposition levels of 10% and above as `significant' opposition.
Although this has undoubtedly raised some eyebrows, those issuers that so choose may perhaps find this added impetus of benefit in helping to reinforce their commitment to improving relations with their shareholders, workforce, customers, suppliers and other key stakeholders.
Climate Change
The focus on climate change and engagement between investors and issuers on this matter is expected to continue, and with the development of reporting requirements, companies can expect continued pressure and scrutiny from investors to better improve on their climate related reporting especially in light of the recent issuance of the IFRS Sustainability Disclosure Standards by the international Sustainability Standards Board (ISSB). The Standards will be effective for annual reporting periods beginning on or after 1 January 2024. These will be available for use before that date to the extent a company applies both Standards at the same time. If a company does apply these standards before 2024 it will disclose that fact.
We are forecasting that we may see a peak of climate-related resolutions again in 2024/2025, as the companies that sought shareholder approval on their Climate Transition Plans or climate-related disclosures in the three years prior, may repeat this process again. Additionally, it is envisaged that the IFRS Foundation will take over the monitoring of the progress on companies’ climate-related disclosures from TCFD as of next year.
Executive Remuneration
The level of scrutiny around executive remuneration, from both shareholders and wider stakeholders, will not diminish, given this is a perennial topic. The ever-present threat of shareholder dissent can be most effectively managed by means of on-going and interactive dialogue with investors, and through the vigilance of Remuneration Committees to ensure that executive remuneration keeps in step with company performance, the workforce and wider society. In the absence of the above, Remuneration Committee members, as well as remuneration related resolutions may be subject to dissenting votes.
Board Composition
This proxy season has seen early adopters of the new FCA Listing Rules (LR 9.8.6R(9) and LR 14.3.33R(1)) for issuers that require them to include a statement in their annual financial report on their diversity targets, making it easier for investors to see the diversity of their senior leadership teams. A key focus for investors in FTSE 250 companies will be to see that they are making progress towards the 2024 deadline of appointing at least one minority ethnic director to the Board.
And on the part of FTSE 350 constituents, new ethnic diversity targets launched for December 2027 by the Parker Review will mean that each FTSE 350 Company will need to set a percentage target for senior management positions that will be occupied by ethnic minority executives by this date.
Stakeholder Relations
Many companies have amended their Articles of Association to be able to hold hybrid meetings, driven by the measures introduced during the COVID pandemic. The underlying concern has always been to ensure that the voice of the shareholder was not muted, and that the AGM remains fit for purpose, as a key tool at the heart of corporate accountability. Therefore, it is recommended that the priority of issuers is to remain focussed on improving stakeholder relations to avoid potential issues on the election of relevant Board members in the future. Companies who are seeking to allow the holding of virtual only shareholder meetings will continue to draw criticism and we expect this will remain the case until mutually robust and effective engagement can be accomplished on the part of the company and its shareholders.
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