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Shareholder Proposals - Key Issues for 2023 Proxy Season

The 2023 annual shareholder meeting and proxy season is fast approaching. Public companies should expect another active year of shareholder proposals focused on environmental, social and governance (ESG) issues as well as political spending, diversity, executive pay and other hot topics. Understanding the trends around shareholder proposals provides helpful preparation for navigating the upcoming proxy season maelstrom.

This post will examine shareholder proposal data so far in 2022, discuss priority issues for 2023, and outline considerations for companies facing a swarm of proposals. Robust engagement on shareholder concerns is crucial to mitigate scrutiny and reputational risks.

Shareholder Proposal Trends in 2022

While final 2022 numbers remain pending, current data highlights:

• - Volume Rebounds After COVID: In 2021, shareholder proposal submissions dropped to 415 from 631 in 2020 due to virtual annual meetings. So far in 2022, volume has rebounded to 615 proposals.
• - Increased Focus on Climate: Proposals related to climate change preparedness, emissions reductions, and reporting rose to at least 148 so far, topping last year’s total of 124. Climate remains front and center.
• - Continued Pressure on Political Spending: The number of proposals demanding disclosure of corporate political spending and lobbying activities rose again to at least 163.
• - Majority Votes on Environmental Plans: Duke Energy and Chevron both faced proposals demanding shareholder approval of their climate transition plans, garnering majority votes. Activist pension funds like CalSTRS spearheaded the resolutions.
• - ExxonMobil Defeat: Engine No. 1 successfully placed three dissident candidates on Exxon’s board after frustrations over the oil giant’s environmental strategies. A major activist victory.

Shareholder scrutiny shows no signs of abating across hot button issues like climate change risks, political contributions, and board accountability. Companies should plan for another demanding proxy season.

Priority Issues For 2023

Based on current trends, shareholder proposals in 2023 will likely emphasize:

• - Climate Strategies: Requests for detailed climate plans, emission targets, and improved disclosures will remain widespread as shareholders demand aggressive decarbonization commitments.
• - Diversity Disclosures: Calls for expanded reporting on diversity and pay equity data, along with tying executive pay to diversity goals, will stay prominent.
• - Political Spending: Disclosure on election contributions and lobbying outlays will continue drawing intense shareholder interest and proposals.
• - Executive Compensation: Proxy advisor policies will keep pressure on equitable and performance-based compensation packages.
• - Virtual Meetings: Proposals urging limits on virtual-only annual meetings due to accountability concerns will persist.
• - Deforestation Commitments: Reducing supply chain impacts on forests is an escalating focus, especially for consumer goods companies.
• - Human Rights Reviews: Shareholders want human rights risk assessments, particularly for companies operating in high-risk regions.

Boards should anticipate another barrage of proposals centered on social and environmental themes. For companies lagging on these issues, scrutiny may be especially severe.

Navigating the Proxy Season

Companies facing a wave of shareholder proposals should:

• - Prioritize substantive engagement: Take shareholder concerns seriously and communicate policies in place or changes underway to address topics like climate and diversity.
• - Consider acceding to popular requests: If top shareholders are united on a particular reform like political spending disclosures, accommodation may be prudent to satisfy activists.
• - Emphasize competitive harm: For demands like climate target details, argue disclosures could aid competitors without benefitting shareholders.
• - Assess compromise options: If the board disagrees with a proposal’s specific solution, offer alternatives like increased reporting or forming an advisory committee.
• - Employ confidential voting: For controversial issues like executive pay, preventing activists from soliciting voting commitments helps secure failed proposals.

With smart engagement and shrewd proposals, companies can mitigate risks during the high-stakes proxy season. But substantive reflection on shareholder priorities is essential. The days of ignoring activists are over.

Conclusion

The 2023 proxy season promises continued assertions of shareholder power over ESG strategies, social policies, governance approaches and disclosure expectations. Boards must address activists wisely to curb reputational damage and proxy contest threats. With proposals becoming binding through majority votes, the stakes are escalating. Companies preparing thoughtfully have the best chance to navigate turbulent annual meeting waters. Developing strong shareholder relations provides ballast against future proxy storms.