2022 AGM Mid-Season Review
PART ONE – PROXY VOTING SEASON ANALYSIS
Welcome to part one of Equiniti’s 2022 AGM mid-season review.
Cormac Chesser, Corporate Governance Manager, has provided an insightful analysis which we hope can assist you with planning stakeholder engagement and preparing for the next AGMs.
This update shines a spotlight on the 2022 AGM voting season data from January to June, and considers the trends in proxy advisor voting recommendations and shareholder voting behaviour. Part two of our mid-season review will follow where we will go in-depth on the trends identified in part one, focusing particularly on resolutions that received less than 80% support. As part of the more in-depth review, we will include a sample of the voting behaviour for the top 20 institutional investors by meetings voted on the FTSE 350 index.
In summary, the overall number of significant against votes indicates that investor voting behaviour was particularly assertive during 2021, in comparison to 2020 and 2022. In terms of overall levels of proxy advisor support, while ISS’ overall recommendations show an elevated level of opposition during 2021 when compared to 2020 and 2022, Glass Lewis’ support for remuneration resolutions, in particular, has steadily decreased over the three-year period.
In terms of resolutions seeing less than 80% support, as well as resolutions to approve executive remuneration and the election of directors, capital management resolutions such as share issuances and repurchases stand out as seeing an elevated level of opposition over the three-year period. So to the Say on Climate resolutions put forward by a small number of companies on a voluntary basis, some of which received less than 80% support. While none of the Say on Climate resolutions failed, the opposition shown by investors to these resolutions gives a degree of insight into investor expectations with regards climate action plans put forward by companies, which we will discuss in detail in our follow up to this overview.
To shed further light on trends in shareholder voting over the past six months, this update looks at:
• 2022 AGM season voting statistics…so far
• High-level assumptions for Q3 and Q4
• Emerging trends and likely focus for the 2023 AGM season
Head of Corporate Governance, Equiniti
2022 AGM season voting statistics…so far
Scope of data
The 2022 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 2022 with the same period in 2020 and 2021, to identify any interesting trends.
Time Period: 1 January to 30 June for the years 2022, 2021, 2020
Sources: Institutional Shareholder Services (ISS); Proxy Insight.
The significant increase in the number of special meetings held during 2021 likely reflects the profound impact of the pandemic related quarantine restrictions on the businesses of FTSE 350 companies during 2020/21.”
In terms of meetings so far, there were slightly less meetings than the average, and 12 less meetings than the same period last year. Here, it is worth noting that the number of meetings during 2021 (c.270) was elevated, reflecting an increase in the number of special meetings (51) in comparison to 2020 and 2022, (c. 30). The significant increase in the number of special meetings held during 2021 likely reflects the profound impact of the pandemic related quarantine restrictions on the businesses of FTSE 350 companies during 2020/21.
Chart 1: Meetings January to June inclusive, 2020–22*
* 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, ISS and Glass Lewis.
…the level of overall opposition has increased…”
Chart 2: Director Election Resolutions, 2020–22
Looking at director elections, year on year the level of overall opposition has increased, going from 1.8% to 2.5% over the three-year period. This is interesting when compared to the level of support shown by Glass Lewis and ISS, which shows that they were more supportive of director elections during the 2022 proxy voting season than in the previous two years.
…Glass Lewis’ overall level of support has decreased steadily over the three-year period.”
Chart 3: Remuneration Report Resolutions, 2020–22
A slightly different picture emerges when one compares the average level of support for resolutions to approve the Remuneration Report. Shareholder support shows a slight curve, dipping during 2021 before increasing slightly during 2022. In the case of ISS, the overall level of support shows a much deeper trough during 2021, while Glass Lewis’ overall level of support has decreased steadily over the three-year period.
The overall level of support from investors has steadied.”
Chart 4: Remuneration Policy Resolutions, 2020–22
In terms of resolutions to approve Remuneration Policies, the overall trends are similar to those for resolutions to approve Remuneration Reports. The overall level of support from investors has steadied somewhat, while the level of support from Glass Lewis has steadily decreased. In the case of ISS, the graph shows a steeper negative curve for 2021 in comparison to overall investor levels of support over the three-year period.
Resolutions < 80% Support
...seeing a resolution receive less than 80% support is quite unusual and is a sign of significant shareholder dissent...”
Chart 5: Resolutions <80% Support, 2020–22*
* Excluding shareholder resolutions.
Of the c.4,500 resolutions submitted to 260 meetings during January to June 2022, 80 received opposition of 20% or more, representing 1.8% of all resolutions proposed. This is reflective of the percentage receiving significant opposition during 2020, and highlights the elevated level of opposition during 2021, when 2.3% of all resolutions received significant opposition.
The low overall percentage of resolutions seeing significant opposition highlights the high level of overall support received by companies on the FTSE 350 from their shareholders. Accordingly, seeing a resolution receive less than 80% support is quite unusual, and is a sign of significant shareholder dissent. 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.
...remuneration resolutions saw the highest level of opposition, followed by director elections and capital authorities.”
Classification – We have classified resolutions into broad categories. For example, ‘Capital Management’ includes authorities to issue and/or repurchase shares, while ‘Routine Agenda Item’ includes resolutions to approve the annual Accounts and Reports, dividend policy and short meeting notice period.
Chart 6: 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.
The overall number of resolutions seeing significant opposition highlights 2021 (100 resolutions) as one of particular assertiveness on the part of investors with regards what they considered inappropriate practices at their investee companies. As might have been expected, remuneration resolutions saw the highest level of opposition, followed by director elections and capital authorities.
Perhaps most interesting is the continued high level of opposition to capital authorities. While opposition to remuneration and director election resolutions have returned to the level of 2020 or even below, opposition to capital authorities remains slightly above the 2020 level. Another interesting trend is the opposition shown to Say on Climate votes voluntarily put forward by a handful of UK plcs. Currently, such resolutions remain voluntary, though reporting against the Taskforce for Climate Related Financial Disclosures (TCFD) is now mandatory. It will be interesting to see if other relevant resolutions, such as approval of the Accounts and Reports, begin to see similar opposition going forwards.
...most interesting is the greater number of resolutions related to capital management which failed over the past two proxy seasons”.
Below, we include details of failed resolutions from the past three seasons by type.
Chart 7: Failed Resolutions, 2020–22
As the table above shows, the number of failed resolutions reflects observations above, highlighting 2021 (10 resolutions) as a period of particular assertiveness in terms of proxy voting. Perhaps most interesting is the greater number of resolutions related to capital management which failed over the past two proxy seasons, and it will be interesting to see if this trend continues into the future. Also interesting is the slight dip in the number of remuneration resolutions that failed during this period in 2021, when compared to 2020 and 2022. Given the higher overall level of opposition during 2021, it is interesting to note that less remuneration resolutions failed that year than either before or after.
High-level assumptions for Q3 and Q4
It has been over two years since the UK Government announced Stay at Home Measures in response to the outbreak of the COVID pandemic. While COVID is still with us, quarantine measures have ended, and the pandemic has been somewhat supplanted in the popular consciousness by both the Ukraine conflict and growing confirmation of the profound changes we are experiencing in our climate. Combined with the significant price inflation for which the issues just mentioned are at least partially responsible, the world remains a more unpredictable place.
Accordingly, issuers should not assume that the assertiveness shown by either the proxy advisors or shareholders during recent proxy seasons is likely to decline. This is particularly the case for executive remuneration, where the pay packets of executives are perceived to be out of step with the wider stakeholder experience. Any proposals to increase executive remuneration over the coming years are likely to be analysed in the context of the significant inflationary pressures that are leading to a real decline in wages for many people and will require significant justification.
Furthermore, given the growing evidence of profound, negative climate change, companies can expect increased pressure to improve climate change related reporting. Currently, the Say on Climate resolutions put forward by some companies are voluntary, but reporting in line with the guidelines laid out by the TCFD has become mandatory for UK plcs. In the absence of a mandatory Say on Climate resolution, issuers can expect their investors to subject their climate related disclosures to increasing scrutiny. Companies who do not provide credible climate transition plans are likely to see increasing opposition to relevant resolutions at the AGM, and may even see some shareholder activism, as has become the norm in the United States.
Associated with this is having the right mix of directors on the Board, to create the appropriate environment for good decision-making. The consensus position is that Boards composed of the right mix of knowledge, skills, experience and outlooks are best placed to make informed, insightful decisions that will guide a given company towards continued shareholder value creation within an increasingly challenging business environment. Companies can expect continued scrutiny of Board composition, and continued opposition to directors considered to be overly committed or insufficiently independent of the company.
We expect a continuation of the trends we have seen on shareholder engagement, noting in particular that companies are engaging with shareholders ahead of final decisions on executive remuneration decisions and changes to Remuneration Policies.
Additionally, we expect a more comfortable rhythm to emerge with both companies and shareholders embracing technology to attend shareholder engagement events and shareholder meetings themselves. We fully expect to see the development of hybrid meetings for the longer term, an opportunity to maximise shareholder engagement throughout the shareholder base.
As for proxy advisors, now that the traditional “busy season” is over, we expect increased availability of the main proxy advisors to hold engagement meetings with companies, particularly as we move into the Autumn.
Emerging trends and likely foci for the 2023 AGM season
Now that reporting in line with the TCFD recommendations has become mandatory, companies can expect greater scrutiny of those disclosures, as well as the beginning of peer comparisons to identify best performers and perceived laggards. The Financial Reporting Council published its CRR Thematic review of TCFD disclosures and climate in the financial statements in July 2022 which sets out their findings. It remains to be seen if a mandatory Say on Climate resolution will be introduced, but companies should not assume that any perceived poor performance in terms of disclosure or achievement of climate change related targets will go unpunished. In the years to come, resolutions to approve the annual Accounts and Reports, or to reappoint relevant Directors, are likely to see opposition from investors if they are dissatisfied with a given company’s progress with regards climate change, or disclosures in that regard.
Given the significant price inflation currently being experienced globally, companies can expect any proposals to increase executive remuneration to require substantial justification. Any perception of executive remuneration becoming out of step with company performance, the workforce and wider society are likely to lead to shareholder dissent. Should a company seem inflexible in this regard, shareholders are likely to vote against the reappointment of Remuneration Committee members, as well as remuneration related resolutions such as resolutions to approve the Remuneration Report and/or Policy.
Now that reporting on stakeholder relations is well established, companies can expect engagement with socially minded investors on this topic. This is all the more likely given the increasing uncertainty being experienced in terms of climate change, the economic turbulence being generated by increasing political conflict around the globe, and the significant price inflation being experienced as a result of these and other factors. Should a company be perceived to be resistant to improving relations with its workforce, customers, suppliers, shareholders or other key stakeholders, this may lead to significant shareholder opposition to relevant Board members in the future.
The consensus position is that having the right mix of Board members is key to directing a Company towards continued shareholder value creation. Accordingly, Board composition is, and will remain, a key focus for institutional investors, who will always be concerned to see a good mix of relevant skills and experience, as well as diversity of background, outlook and tenure, to name but a few of the factors taken into account when reviewing Board composition. Currently, a key focus is diversity in terms of gender and ethnicity, and UK plcs should be careful to bear this in mind as they pursue their Board refreshment processes. So too more traditional concerns such as the level of external commitments of each director, and their independence of management.
As we close this update, we reflect that the key themes are as we predicted, and we advise that keeping abreast of investor initiatives, particularly around climate change, will be important as we move forward. We look forward to providing a more in-depth analysis of the trends identified later in the year, focusing in particular on resolutions that received less than 80% support together with considering a sample of the voting behaviour for the top 20 institutional investors.
Boudicca is part of the Equiniti group of companies and is a specialist shareholder engagement company.
A leader in the growing arena of investor communications, and based in London, Boudicca works to secure maximised proxy voting and participation in shareholder meetings and corporate transactions. Boudicca has worked on hundreds of AGMs, EGMs and M&A transactions for clients in the UK, Europe, North America and cross border since inception – including some of the most complex proxy voting cases and corporate transactions – and delivers a high rate of success.
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