The 2023 proxy season saw a growing diversity of issues come up for shareholder votes at corporate annual meetings. (The term “proxy” here refers to investment managers who, like ourselves, have our clients’ permission to cast shareholder votes on their behalf.) While climate activism in the boardroom has moved toward the mainstream, concerned shareholders continue to broaden the scope of issues on which we push corporations toward greater progress. At the same time, an opposing movement to politicize shareholder activism and attempt to undercut environmental and social progress demands our increased rigor as we cast our votes.
At Prentiss Smith & Company, we conducted a deep analysis of shareholder proposals, board members and board diversity, executive compensation, and governance at 90 companies (and counting) in 2023. Among these companies, we had a 48% overall dissension rate to board recommendations, the same as last year. This included:
- A 49% dissension rate on individual board members. Within this 49%, more than 30% included a lack of overall board diversity as one disqualifying factor.
- A 52% dissension rate on executive compensation. We evaluate the executive pay that is effectively guaranteed, and vote “no” when the ratio of such pay to median employee compensation is egregiously large.
- An 82% support rate for shareholder resolutions. This rate has unfortunately dropped in comparison to last year, due to the increasing number of politically-motivated proposals seeking to roll back progress, which we typically vote against.
Our proxy slate includes many companies whose stock we did not originally buy on behalf of clients. This means we are able to support activist resolutions within industries we would normally avoid (such as fossil fuels), as well as with companies we have chosen to own. Across these companies, some of the key issues we encountered in 2023 included the following:
- Climate-related resolutions continue to lead the pack, with 31 such resolutions receiving our support in 2023. Within this group, we have seen a greater diversity of resolutions, including those pushing companies to set emissions targets, produce energy transition plans, and align lobbying practices with publicly stated goals to fight climate change. Oil companies including Exxon and Chevron face increasing shareholder demand to transparently report emissions and plan for a low-carbon future, as do industrials like GE and Raytheon. Lenders including Berkshire Hathaway, JP Morgan, and Wells Fargo are being pushed to change their lending practices to exclude fossil fuels and related industries. Tech giants including Amazon, Google and Meta (formerly Facebook) face calls for more transparency and alignment on climate lobbying. And carbon-intensive companies like UPS are even being asked to integrate emissions into executive compensation metrics.
- Lobbying and political activity remain under the microscope at annual meetings. Companies of all stripes are being asked to fill in the (large) gaps left by legally mandated lobbying disclosures, from association and chamber of commerce memberships to state and local campaign spending. Along with the proposals that were specific to climate-related lobbying, we voted for more than 20 proposals seeking greater disclosure and oversight of political activity more generally, at companies as diverse as Abbott, Coca Cola, Home Depot, Mastercard, and Verizon. A proposal at Tesla even pushed to address the business risk in having a politically outspoken and controversial CEO.
- Diversity, equity and inclusion (DEI) were again major themes among shareholder proposals in 2023, although as more and more companies conduct and act on racial equity audits, the number of these proposals appears to be lessening (this year we voted just over 10 such proposals, compared to 20 in 2022). About half of the 2023 DEI proposals we supported requested racial equity audits, including at AT&T, Coca Cola, and Walmart. But many of the rest challenged the effectiveness of existing audits, at companies like Berkshire Hathaway, Danaher, and UPS—or pushed for better reporting of gender and racial pay gaps, for instance at Apple and Schwab. As always, our votes on individual board members also reflected our commitment to promoting leadership diversity, with a 30% dissension rate connected to insufficient board diversity.
- Health and human rights proposals have been widespread. Shareholders are pressuring drug companies such as Abbvie, J&J, Merck and Pfizer to disclose the ways they use “patent thickets” to prolong the exclusivity of their drugs, which passes on massive costs to patients and the health care system more generally. On the human rights front, large retailers like Amazon and Walmart are being pushed to toughen oversight of their supply chains, while tech companies increasingly face calls to address the adverse human rights impacts of their products, such as facial recognition (Amazon) and social media for teens (Meta). A resolution at Mastercard has pressured the company to clarify its stance on a new gun purchase code, an initiative that’s been “paused” amid opposition from US lawmakers.
- Beyond climate, we voted for additional environmental resolutions pushing Dow Chemical to phase out single-use plastics, Amazon to disclose the impacts of its packaging, GM to report its progress on sustainable materials procurement, and Exxon to improve its policies on spills, plastic production, and Arctic drilling. Additional animal rights resolutions at Amazon and McDonalds received our support as well.
- Lastly, a trend of overly politicized proposals has unfortunately continued to grow. Most of these are filed by one of two think tanks; typically they target companies whose policies they view as overly progressive or “woke.” The most common themes are challenges to racial equity efforts (typically filed under the guise of protecting civil liberties for “all” employees), proposals seeking to roll back climate targets or net zero emissions policies, and attempts to troll companies with ties to “communist China” (in which the real human rights issues in China are unfortunately subordinated to more politicized language and aims). When these proponents issue proposals we agree with, such as for separating the CEO and Board Chair roles, we will still support them, as long as the language and references are practically and politically neutral.
Despite the rise in politically motivated proposals, we are generally encouraged by the widening scope of issues areas over which shareholders are pushing corporations for better progress. Climate activism in the boardroom has unquestionably become a factor in corporate action on climate change; we hope that the same will soon be true for other environmental challenges, for greater equity and inclusion, for better disclosure of political spending and controls on lobbying, and for progress on health and human rights. Corporate leaders are increasingly more open to dialogue and change in these areas. But activist investors have as critical a role as ever in identifying company-specific impacts and creating pressure and accountability that can lead to real change.