Proxy Season 2020: Board Composition, Climate, Political Contributions

In a report released today, The Conference Board finds that the environmental and social policies of corporations will continue to take center stage in the 2020 shareholder voting season. Institutional investors will continue to focus on issues pertaining to board diversity, disparities in the compensation of female employees, and transparency around corporate political activities.

Conducted in collaboration with ESG data analytics firm ESGAUGE, leadership advisory firm Russell Reynolds Associates, and the Rutgers Center for Corporate Law and Governance, Proxy Voting Analytics (2016-2019) and 2020 Season Preview provides a comprehensive analysis of the most recent trends in shareholder voting and activism across the entire Russell 3000, as well as a preview of what corporations should expect in the year ahead. Key insights include:

Board composition is likely to continue to be a critical issue in 2020, prompting companies to evaluate existing skillsets, the overboarding of incumbents, and the diversity of new nominees. In the Russell 3000, the number of directors receiving less than 50 percent support level has climbed from 37 in 2016 to 54 in 2019. Similarly, The Conference Board counted 421 directors who received less than 70 percent of votes cast at this year’s annual shareholder meetings; there were only 273 in 2016.

“While these remain small numbers overall (more than 16,000 directors were up for re-election in the Russell 3000 in the examined 2019 period), they are part of a new upward trend, and that reflects some large institutions intensifying their scrutiny of board composition,” said Matteo Tonello, Managing Director of ESG Research at The Conference Board and the author of the publication.

The demand for corporate political activity disclosure may reach a tipping point in the months preceding the next presidential election. While endowment funds of religious orders and special stakeholder groups were the first to call attention to social and environmental policies of corporations, these issues have now moved to the front and center of proxy seasons for traditional investors. The topics are wide-ranging: They span political contribution disclosure to compliance with human rights in the supply chain, to the disclosure of business risks resulting from the opioid crisis to the adoption of a climate change policy.

Even though social and environmental shareholder proposals still tend to fail, the data show a slow but steady upward trend in terms of voting support,” said Matthew Goforth, Vice President, Corporate Solutions at ESGAUGE, the data provider that contributed to the study. “In the months preceding the next presidential election, companies may witness a record number of shareholder proposals and engagement efforts on the disclosure of political activities, including monetary contributions to campaigns and lobbying.” (It’s a category under which average investor support level has risen from 24.6 percent in 2017 to 33.6 percent in 2019.)

Companies should be prepared to consider disclosure on gender pay equity. Prominent corporations such as Amazon, American Express, Intel, and Facebook were among the recipients of shareholder proposals on gender pay equity in 2019. While none of these proposals passed, several companies that had previously been the target of similar requests preempted new investor demands by volunteering information on their compensation policies and by pledging to close the gaps.
As just one sign of the issue’s rising significance, a popular gender equality index, tracking the most forthcoming companies on issues of gender diversity and pay equality, has doubled in size in 2019. Whether they choose to publicize their findings or not, companies should consider gathering accurate internal data on this issue and what steps to take in light of the findings.

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