Anne-Marie Clarke
Head of Corporate Governance, EQ
In this article Anne-Marie highlights that to understand how successful the voting outcomes will be, it is important to be prepared, for example through understanding institutional investor voting policies and how they assess corporate governance and remuneration matters. As experts in stakeholder engagement and proxy voting, supporting over 100 issuers during 2023, the EQ Proxy Advisory is well placed to support and advise, particularly valuable when AGMs are a major event in the company secretary’s calendar.
This article, available here to CGIUKI subscribers, builds on EQ’s AGM Forum webinar in September and Mid-Season Review.
Key messages
- Director election resolutions continue to receive high levels of support.
- Remuneration policy triennial renewal vote showed no failures.
- Disapplication of pre-emption rights authority received good levels of support.
2023
Each year, annual general meetings (AGM) in the UK provide the opportunity for directors to seek shareholder approval for resolutions.
To understand how successful the voting outcomes will be, it is important to be prepared, for example through understanding institutional investor voting policies and how they assess corporate governance and remuneration matters. Among the many factors influencing how shareholders vote are:
- the ‘type’ of shareholder – for example, employees, individual shareholders, institutional shareholders –
- their likelihood of voting
- corporate governance expectations.
Many institutional shareholders have detailed voting policies which are supplemented by the use of proxy advisory agencies who produce voting recommendations.
Shareholder engagement is also crucial to inform how successful voting outcomes will be, particularly in a year of remuneration policy renewals. This is an opportunity for boards and remuneration committees to understand shareholder views and take these into consideration before presenting a matter for approval.
Below, we consider some of the key voting themes we have observed for AGMs in the FTSE 350 held from 1 January 2023 to 31 July 2023, the period when many UK listed companies hold their AGMs.
Annual report and accounts
Very pleasingly we see high levels of support for adoption of the annual report and accounts. We continue to see the development of reporting in line with TCFD, and section 172 reporting is now well established. Neither have been observed as voting issues, as yet.
Director elections
This is by far the category with the highest number of individual resolutions, driven by the UK Corporate Governance Code setting expectations for annual re-election of directors. A growing number of factors are being assessed by shareholders, specifically institutional investors, to inform their decision on whether to re-elect a director.
While we have witnessed an increasing focus on over-boarding and diversity levels, particularly gender diversity at board level, overall, we observed very good levels of support, with less than 1% of director election resolutions receiving less than 80% support.
Ethnic diversity expectations have been set by the Parker Review for FTSE 350 companies – the target is for FTSE 100 companies to have at least one director of colour by the end of 2021 and for FTSE 250 companies to achieve this by the end of 2024. The new listing rules for reporting on diversity and inclusion have built on this; we wait to see the voting impact if expectations have not been met.
Executive remuneration
For UK listed companies, the remuneration report is an annual advisory vote on the AGM agenda, while the remuneration policy needs to be submitted for shareholder approval at least every three years.
2023 was a busy year for the triennial approval vote, and average support levels across the FTSE 350 increased compared to 2022. Importantly we saw no failures, meaning that companies can now proceed with implementation of the policy to incentivise and reward their executive directors.
The remuneration report sets out how the remuneration policy has been implemented and is possibly the biggest area of focus and analysis. If you consider the length of the directors’ remuneration report in the annual report, often running to over 20 pages long, this may give an indication of the level of detail and scrutiny applied.
Levels of support for the remuneration report across the FTSE 350 were above 92%; 22 resolutions received less than 80% support and two resolutions failed to pass. As an advisory vote only, there are no procedural implications, however institutional investors can be exercised by what they deem to be poor remuneration practices year on year, and this can eventually lead to issues with the election of directors who are members of the remuneration committee.
Share capital authorities
Overall support levels for all types of share capital authority requests declined in 2023 compared to 2022 however remained above 95% on average. There will be multiple factors influencing these average support levels. In the UK, the typical AGM agenda includes authority to allot shares on a pre-emptive basis and authority to disapply pre-emption rights for a proportion of those allotments. We also see the request for market purchase of shares. There are clear market expectations on the maximum levels to be requested and conditions that apply to those authorities. 2023 saw an increase in the allowable levels for the disapplication of pre-emption rights, levels that were supported by proxy advisors ISS and Glass Lewis, and pleasingly most of these resolutions saw high levels of support.
For further details on our analysis and observations please read the EQ Mid Season Review and watch the EQ AGM Forum.