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Proxy Season 2020: A Look Back and Looking Ahead at Shareholder Proposals

Data compiled and analyzed by Peggy O’Keefe, Managing Director, Corporate Governance, EQ Proxy  The data is based on voting results as of June 30, 2020, covering Russell 3000 statistics from the ISS Voting Analytics platform. The proposals are separated into categories under three key topics: environmental, social, and governance.

Who files what

Governance proposals
The majority of governance-type proposals are filed by individuals who are corporate gadflies*; the rest are filed by public and private pension funds, and a few by religious groups and socially responsible investors (except for executive-compensation type proposals, these are filed primarily by public and private pension funds, socially responsible investors, and occasionally religious groups.

Social proposals
Most social-type proposals are filed by socially responsible investors and religious groups, some by pension funds, and a few by corporate gadflies; these social proponents also file environmental-type proposals.

Environmental proposals
The proponents are generally socially-responsible investors, with some religious groups, public and private pensions, and occasionally a gadfly.

The most common socially responsible investors are:

  • Arjuna Capital
  • As You Sow
  • Boston Common Asset Management
  • Friends Fiduciary Corporation
  • Harrington Investments; also files under John Harrington
  • Impax Asset Management
  • Jantz Management
  • Nathan Cummings Foundation
  • Newground Social Investment
  • NorthStar Asset Management
  • Oxfam America
  • Proxy Impact (a small proxy advisory firm)
  • Trillium Asset Management
  • Walden Asset Management
  • Zevin Asset Management

Religious groups
Religious groups that file proposals most often include many orders of nuns, American Baptist Home Mission Society, the Episcopal Church, Investor Advocates for Social Justice, Mercy Investment Services, the Presbyterian Church, and the Unitarian Universalist Association of Congregations. Some file more than others.

Pension funds
Pension funds filing proposals most often include state/city specific public employee pension funds, such as NYC Pensions, and the New York State Common Retirement Fund, Philadelphia PERS, and the Vermont Pension Investment Committee. Public services employee union pension funds include CtW Investment Group and the SEIU Master Trust; general private labor union pension funds include AFL-CIO, the Int’l Brotherhood of Electrical Workers, Int’l Brotherhood of Teamsters, and the United Steelworkers.

Given the success rate and the current environment of large numbers of protests regarding racial inequality, we anticipate seeing a climb in these proposals in 2021.

Proposals targeting diversity issues

There are two main types:

  1. Related to disclosure of Employee Workforce Diversity
    • These are social-type proposals: Seven total proposals; four received a majority vote
  2. Related to Board/CEO/NEO Diversity
    • These are governance-type proposals: Five total proposals; two received a majority vote

Employee Workforce Diversity

  • Fastenal Company – Report on Diversity (As You Sow, proponent): 57.65% for
  • Genuine Parts Company – Human Capital Management Disclosure (As You Sow, proponent):74.45% for
  • O’Reilly Automotive, Inc. – Report on Human Capital Risks and Opportunities (As You Sow, proponent): 64.90% for
  • Fortinet, Inc. – Report on Diversity & Inclusion Efforts (Nia Impact Capital, proponent): 69.01% for

As You Sow and Nia Impact Capital are both socially-responsible activist investors, and Nia is women-led. Both investors are focused on sustainability issues including diversity, human rights, and environmental issues. The average vote on the three proposals that did not pass is approximately 36% for.

In the 2019 proxy season, there were a total of eight of these types of proposals voted on; two of these passed:

  • Newell Brands, Inc. (55.4% for, Trillium Asset Management, proponent)
  • The Travelers Companies, Inc. (50.34% for, proponent also Trillium Asset Management)

One of the 2019 proposals was at Facebook; the majority of its outstanding shares are held by insider Mark Zuckerberg; this results in low favorable votes for proposals management does not support, as is the case with most shareholder proposals. In addition, ISS recommended against the Facebook proposal; this is the only proposal of this type that ISS did not support, in both 2019 and 2020. Not counting the two that passed, and Facebook’s proposal, the average vote of the remaining five proposals was just under 40% for.

What we forecast

We anticipate seeing a climb in these proposals in 2021, given the proposals’ success rate and the current environment of large numbers of protests regarding racial inequality and the publicity surrounding these protests.

Board/CEO/NEO Diversity

  • National HealthCare Corporation – Report on Plans to Increase Board Diversity (NYS Common Retirement Fund, proponent): 59.21% for
  • Expeditors International of Washington – Adopt a Policy to Improve Board and Top Management Diversity (NYC Comptroller, proponent: 52.87% for

Scott Stringer, the NYC Comptroller, head of the NYC Pension Funds, the proponent at Expeditors, started the Boardroom Accountability Project back in 2014. This project originally focused on Proxy Access shareholder proposals, and had very successful results. The latest push has been for greater diversity in the boardroom, as well as in outside searches for new CEOs, in terms of gender and race, on the basis that improved diversity leads to improved performance. Mr. Stringer stated this policy is similar to the NFL’s “Rooney Rule,” adopted for football team employment searches for management positions. For the 2020 proxy season, the Boardroom 3.0 project publicized that it sent letters to 56 companies regarding their policies on these issues, and stated that it would file shareholder proposals unless policy changes were adopted. Most of these firms altered their policies in accord with the Boardroom Accountability requests; some after shareholder proposals were filed at 17 of these companies; only three came to a vote. The Expeditors’ vote received a majority in favor.

What we forecast

The NYC Pension funds has significant clout, especially because other public pension funds often support their proposals; it’s not surprising that many companies adjusted policies to be in line with NYC Pensions, to avoid the publicity surrounding diversity shareholder proposals management opposes that receive shareholder approval. Going forward, if NYC Pensions continues this push for gender/racial diversity, they will likely see increased support, given current circumstances. It is likely there will be more proposals on this topic in 2021, whether NYC Pension Funds is the proponent, or other investors, due to the publicity diversity issues have received, and that several companies have publicly pledged to promote diversity.

Additional proposals

Of the other three 2020 proposals on this topic, one was at Berkshire Hathaway; the majority of its shares controlled by insider Warren Buffet, resulting in a low favorable vote. The average vote for the other two proposals was approximately 35% for.

In addition, there have also been a number of governance-diversity type proposals that are likely from the National Center for Public Policy Research, called “True Diversity Board Policy” (one of these 2020 proposals was at Costco, received 1.4% for); the proponent is not disclosed at most of these companies. This proponent is a conservative investor, looking for “ideological” diversity, stating that companies should “actually value potential board members for how they think, rather than how they look” (National Center VP David W. Almasi). These proposals generally receive very low favorable votes, typically well under 10% for.

In 2019, of 12 total proposals on board diversity, seven of these were of the “True Diversity Board Policy” type. ISS did not support any of these, and the average vote was approximately 2% for. Of the remaining five proposals, ISS recommended in favor of all and two passed:

  • Waste Connections, Inc. (British Columbia Teachers’ Federation, proponent): 64.5% for
  • Gaming & Leisure Properties, Inc. – (NYS Common Retirement Fund, proponent; management made no voting recommendation on this proposal): 78.3% for

The average vote on the remaining three proposals was approximately 23% for.

Due to the COVID-19 impact on many public companies’ stock price, there may be adjustments made to exec comp payment structures, which could result in shareholder proposals sponsored by investors that don’t agree that changes were warranted

Additional governance-type proposals

Declassify the Board
Six proposals – One company, Daseke, Inc., did not disclose the proponent. Corporate gadfly Kenneth Steiner was the proponent at 2 – New York Community Bancorp, Inc., and Bloomin’ Brands, Inc.; another gadfly, James McRitchie, was the proponent at Axon Enterprises, Inc., and he and his wife, Myra Young, together proposed this item at Holdings, Inc. The proponent at National Fuel Gas Company was GAMCO Asset Management
All of these proposals received a majority vote in favor, but many of these declassifications may not actually go into effect because the company bylaws often require a supermajority vote to amend bylaws, i.e., anywhere from a 2/3 vote to 80% of the outstanding shares voting in favor. Because brokers do not vote discretionarily on these proposals, this will affect vote results based on the total shares outstanding. For example, if the company’s bylaws require 75% of the outstanding shares to support the proposal for it to go into effect, and the company has more than 25% held by brokers, the vote result will likely be less than 75% in favor, even if all other holders vote For, unless additional solicitation to secure votes is done.

Adopt Simple Majority Vote
Nine proposals voted on to date; eight received a majority vote in favor. The only company at which this didn’t pass is Fitbit, Inc, because this company has 62% of its voting power held by insiders. This shareholder proposal is related to the note above; while almost all of these proposals passed, they may not go into effect if a supermajority vote of the outstanding shares is required. The proponents for most of these are corporate gadflies – Kenneth Steiner at Fitbit, James McRitchie at Kellogg, and John Chevedden at 6 others. The AFL-CIO was the proponent at Marriott International.

Independent Board Chair
44 proposals voted to date, the average vote result is approximately 35% for. 2 proposals received a majority in favor – Baxter International (Kenneth Steiner, proponent)- 54.87% For and The Boeing Co. (John Chevedden, proponent) - 52.14% For. In the 2019 proxy season, 55 Independent Board Chair proposals came to a vote, none received a majority vote.

What we forecast

The average "for vote" was approximately 30% in 2019, so comparing the two proxy seasons, not only has the average vote gone up by almost 17%, but two received a majority vote in 2020. This success will likely encourage gadflies to file more of these proposals for 2021.

  • Right to Act by Written Consent; to date 55 proposals have been voted on, 3 passed – at Berry Global Group, (Myra Young, proponent) Stanley Black & Decker (John Chevedden, proponent), and OGE Energy Corp. (John Chevedden, proponent). The majority of these proposals are to establish the Right to Act by Written Consent, but a few request the stock ownership requirement to be reduced in companies that have this shareholder right in place. The average vote is approximately 38% For. Most of the proponents are in the gadfly group.
  • Right to Call Special Meetings – 2 types - either requesting companies to adopt as a shareholder right, or, for companies that have this right in place, but require a minimum 20% or higher share ownership to call the special meeting, this proposal requests a reduction of the required share ownership to 10% or 15%. To date, 39 in total of have been voted on, 2 have passed, at Verizon Communications (undisclosed proponent), and Laboratory Corporation of America Holdings (John Chevedden, proponent). Kenneth Steiner was the proponent for this proposal at Verizon in 2017 and 2018, this proposal was not on the agenda at Verizon’s 2019 annual meeting. The average vote is 42% For. Again, most of the proponents are gadflies.

What we forecast

For 2021, we expect to see corporate gadflies continue with filing similar governance-type proposals, as they have been for many years, particularly John Chevedden.

Executive Compensation proposals
There are several types, but each had only 2-3 proposals. Generally, votes on exec comp proposals are not high, but one proposal, at Stericycle, Inc. received a majority in favor:

  • Limit Accelerated Vesting of Awards upon a Change in Control; approx. average vote For - 14%
  • Adopt a Share Retention Policy for Senior Execs; approx. average vote For – 26%
  • Adopt Policy on Bonus Banking – approx. average vote For – 33%
  • Increase Disclosure of Compensation Adjustments – approx. average vote For – 28%
  • Clawback Policies – 2 of these, Eli Lilly -35% For (Trinity Health, proponent), and Stericycle, Inc. – this one passed – 53.10% For (proponent - Int’l Brotherhood of Teamsters General Fund)

There is an additional type of Exec Comp that, while under Governance, pushes to align exec comp with various types of social metrics:

  • Report on Integrating ESG metrics (or Data Privacy Metrics, or Sustainability Metrics, or Drug Pricing, or Community Impacts) into Exec Comp Program – 7 proposals total – average vote For – 20%

What we forecast

While this average vote is low, we could see more of this type of proposal next year, as there is a demand recently for companies to utilize or improve various social metrics. One proposal was sponsored by the NYS Comptroller, at XPO Logistics; “Report on Integrating ESG Metrics Into Executive Compensation Program” (20.7% For), the rest of the proponents are socially responsible investors – Zevin Asset Management, and several religious organizations, including Mercy Investment Services.

Another point, due to the COVID-19 impact on many public companies’ stock price, there may be adjustments made to exec comp payment structures and targets by compensation committees, which could result in shareholder proposals sponsored by investors that don’t agree that changes were warranted. Such adjustments also could affect Say on Pay voting, as well as ISS and GL vote recommendations, but it’s too soon to determine this yet.

Though these vote results were generally not high, human rights issues are receiving global publicity, and there will likely be more of these types of proposals filed for 2021.

Social proposals

Report on Human Rights Policy
13 total proposals, with slight variations. Of the 13, 4 were at companies that have the majority of the outstanding shares controlled by insiders, so the For vote results at these are very low, from 7% - 18% For; at Tyson, Pilgrim’s Pride, Skechers, and Facebook.

Tesla’s annual meeting was July 7, 2020 (TSLA has 23% inside); that vote result should be available by the end of the week. The rest of the companies’ results generally ranged from low 30%’s to mid-40%’s.

Most proponents are religious organizations (various groups of nuns and the American Baptist Home Mission Society); and other socially responsible investors - Nathan Cummings Foundation had 1 at Facebook, and Harrington Investments sponsored 1 (slightly different, this proposal, at PayPal Holdings, while titled “Adopt Human and Indigenous People's Rights Policy” was focused primarily on protecting LGBT people from discrimination), this proposal received 9.3% For.

Oxfam America sponsored 3; this is a socially responsible investor focused primarily on poverty in the supply chain, particularly in food-related sectors. One proposal was at The Kroger Co.; “Report on Human Rights Due Diligence Process in Operations and Supply Chain”, this received 44.70% For. Oxfam America sponsored similar proposals at Sanderson Farms (37.2% For) and at Pilgrim’s Pride, but Pilgrim’s has 78% of the o/s controlled by insiders, so this proposal only received 12.8% For.

A proposal sponsored by Sisters of the Good Shepherd, at Lear Corp., “Report on Human Rights Impact Assessment” received 44.8% For, this was the highest For vote.

But at Chevron, “Report on Human Rights Practices”, sponsored by the Sisters of St. Francis, received only 16.7% For. This is the only proposal in this group that received below 30% For, except for those companies controlled by insiders. A closer look at the actual proposal language, however, indicates this proposal is more aligned with environmental/community impact issues, rather than human rights in terms of supply chain, which is the focus of most of these proposals.

What we forecast

Though these vote results were generally not high, human rights issues are receiving global publicity, and there will likely be more of these types of proposals filed for 2021.

Report on Pay Disparity
Three proposals- approx. average vote For – 10%, all 3 proposals actually requested that all employees’ pay should be taken into consideration in setting CEO target pay - at 3M (United Steelworkers, proponent), Mondelez International (AFL-CIO, proponent), and TJX Companies (Trillium Asset Management, a socially responsible investor, proponent).

Report on Gender Pay Gap
12 proposals; they generally receive low favorable votes, except for Pfizer, that result was 38.1% For. In 2019, Pfizer had a similar proposal, but the proponent withdrew it because Pfizer agreed “to determine whether and to what extent Pfizer has a global gender pay gap and a U.S race pay gap, on both an unadjusted and an adjusted basis.” But the 2020 proposal states that Pfizer’s gender pay gap statement of 10/17/19 did not provide any unadjusted (median pay) data. The proponent is Proxy Impact; this is a relatively small proxy advisory firm that focuses on socially responsible/ESG issues and files proposals on behalf of clients. Proxy Impact was also the proponent at Cigna Corp., that result was 20% in favor. For the bulk of the rest of these proposals, the proponent is Arjuna Capital, a socially responsible investor; the average vote result is approximately 10% For.

In 2019, there were a total of 13 Gender Pay Gap proposal; none passed. The average vote was approximately 24% For. The difference in vote results, comparing 2020 to 2019, is likely due to the fact that ISS recommended a vote For all the Gender Pay Gap proposals in 2019, except for one, but in 2020 recommended Against all these proposals, except for the Pfizer proposal.

What we forecast

Given the recent and on-going publicity concerning racial inequality, and that several CEOs of large public companies have publicly committed to taking action against racial injustice, it is likely there will be more of this proposal type next year, with higher vote results, particularly if the commitments are not enacted.

Lobbying/Political Contributions
There were 29 Lobbying proposals this proxy season, generally, these request disclosure on direct and indirect lobbying activities and associated payments. One proposal hasn’t been voted yet, at McKesson. Of the 28 voted, one received a majority vote in favor, at Alaska Air Group (Service Employees International Union (SEIU) Pension Plans Master Trust, proponent), 50.9% For. The average vote for the other 27 proposals is approximately 31% For. Last year, the proxy season had 24 Lobbying proposals. One passed, but management had recommended a vote For this proposal. The average vote for the 23 remaining proposals was approximately 29% For. The proponents are divided primarily among religious groups, socially responsible investors, and public and private pension funds.

Political Contributions had a total of 25 proposals this proxy season; generally, these request disclosure on policies and procedures in place for funds the company has spent on political campaigns. Four of these proposals passed; at J.B. Hunt (53.2% For, Int’l. Bro. of Teamsters, proponent), Centene Corp. (51.4% For, Friends Fiduciary Corp., proponent), Western Union (53% For, John Chevedden, proponent ), and at Activision Blizzard, Inc. (56.2% For, James McRitchie and Myra Young, proponents).

The average vote of the remaining 21 proposals was approximately 37% For. The proponents for this type of proposal are split among various types; corporate gadflies, socially responsible investors, religious groups, and public and private pension fund groups. In the 2019 proxy season, 35 of these proposals were voted on; 2 passed, at Alliant Energy (54.3% For, NYC Pension Funds, proponent) and Cognizant Technology Solutions Corp. (53.6% For, James McRitchie, proponent). Macy’s had a 2019 proposal that came very close to passing, at 49.4% For; the proposal would’ve passed if the result did not include abstentions. That proponent was Mercy Investment Services, a religious group.
The average vote on the 33 proposals that did not pass was approximately 36% For

What we forecast

For 2021, there will likely be an increase in both Lobbying/Political Contributions proposals, as the success rate and vote results have incrementally climbed, and these proposals are popular for filing.

 While there was only one of these proposals in 2020, this received a majority in favor, at Johnson & Johnson – “Report on Governance Measures Implemented Related to Opioids” (60.9% For, Bright Start 529 Plan- IL State Treasurer, proponent). In 2019, there was also one opioid-related proposal, which also passed, at Walgreens Boots Alliance, “Report on Governance Measures Implemented Related to Opioids” (59.1% For, Mercy Investment Services, proponent)

What we forecast

While there have been very few opioid-related proposals, they receive high support.

But the impact of COVID-19 could produce shareholder proposals in 2021, as likely will shareholder proposal requests for diversity and racial equality at public companies.

Environmental proposals 

There are several types of environmental-related topics. The proponents are generally socially-responsible investors, with some religious groups, public and private pensions, and occasionally a gadfly.

Report on Climate Change
This proxy season, there were 11 proposals under this topic. Three of these passed: at J.B. Hunt Transport (54.5% For, Trillium Asset Management, proponent), Ovintiv Inc. (56.4% For, Pension Plan of the United Church of Canada, proponent), and at Chevron (slightly different proposal, entitled “Report on Climate Lobbying Aligned with Paris Agreement Goals”), (53.5% For, BNP Paribas Asset Management, proponent). ISS recommended a vote against 3 other of these proposals; the average vote on those was approximately 16% For. The average vote on the 5 remaining proposals that ISS supported was 37% For.

In 2019, there were only two proposals requesting a Report on Climate Change; neither passed.

Report on Greenhouse Gas Emissions
There were three proposals in 2020; one passed at Dollar Tree, Inc. (73.5% For, Jantz Management, proponent). The average vote for the other 2 proposals was 36% For. In 2019, there were 7 of these proposals, none passed. The average 2019 vote was approximately 33% For.

Community – Environmental Impact
There are a variety of proposals under this category, but all relate to the effect of environmental issues on communities, e.g, deforestation, petrochemical operations in flood-prone areas, impact of single-use plastic bags, management of food waste, and others. In 2020, there were 12 proposals under this heading that were voted on; one passed, at Phillips 66 - “Report on Health Risks of Gulf Coast Petrochemical Investments” (53.9% For, As You Sow, proponent). The average vote on the other 11 proposals was approximately 25% For.

In 2019, there were 9 proposals; none passed. The average vote was approximately 21% For.

Report on Sustainability
There were 2 proposals in 2020, one passed, at Enphase Energy, Inc., requesting an annual Sustainability Report describing ESG-related efforts by the company, to which the company responded, “Companies that produce standalone sustainability reports are significantly larger than we are and have significantly more resources to dedicate to ESG reporting,” but shareholders did not agree, and voted to approve this proposal (51.8% For, proponent undisclosed).

In 2019, there were four proposals under this topic, including 3 on Report on Sustainable Packaging; none passed. The average vote was 32% For.

What we forecast

Given the high level of publicity that sustainability issues have had, I expected to see more shareholder proposals covering different aspects of this topic, e.g., requesting standardized disclosure on sustainability metrics, utilizing SASB guidelines for disclosure. The 2020 BlackRock letter to CEOs discussed that “climate risk is investment risk”, so the expectation for more proposals on climate-related proposals and higher votes was anticipated. COVID-19 certainly affected the 2020 proxy season, but mostly in terms of having virtual rather than in-person annual shareholder meetings, and stock price volatility, as well as businesses closing and people being laid off; not in regard to shareholder proposals. Most 2020 proxy season shareholder proposals were filed long before the pandemic took effect. But the impact of COVID-19 could produce shareholder proposals in 2021, as likely will shareholder proposal requests for diversity and racial equality at public companies.

*The term “corporate gadflies” refers to relatively small individual holders who repeatedly file similar proposals at many companies. These include John Chevedden, Kenneth Steiner (and occasionally his father William), and James McRitchie and his wife Myra Young. These proponents generally file Governance-type proposals (occasionally Social-type), and John Harrington (sometimes filing under Harrington Investments), a socially responsible investor, who primarily proposes social-type proposals.

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