The 2022 proxy season—the period from roughly March through May when most companies hold their annual meetings—followed a seminal 2021 season with another strong slate of shareholder proposals pushing more companies further on critical issues. (The term “proxy” here refers to investment managers who, like ourselves, have our clients’ permission to cast shareholder votes on their behalf.) From big votes on greenhouse gas emissions and climate targets, to issues of diversity and equity, to human rights and other social and environmental issues, investors and companies once again had much at stake.
At Prentiss Smith & Company, for the third year in a row we closely reviewed more proxies than ever before, conducting a deep analysis of shareholder proposals, board members and diversity, executive compensation, and governance at 105 companies (and counting). Among these companies, we had a 48% overall dissension rate to board recommendations (compared to 42% last year), including a 46% dissension rate on individual board members (often due to a lack of diversity), a 59% dissension rate on executive compensation, and a 90% support rate for shareholder resolutions. While we have always cast votes on behalf of all client holdings, we continued expanding the scope of our most thorough level of voting research to include many companies whose stock we did not originally buy on behalf of clients, giving us greater insight into industries we would normally avoid—as well as those that do pass our rigorous screens.
Some of the key issues we encountered included:
- Shareholder calls for greenhouse gas (GHG) emissions reporting or targets, which the SEC began allowing to go to vote last year, have continued—not only with oil companies, but among a larger cross-section of the market. In addition to such proposals at Exxon (which we were excited to co-sponsor, and which received 27% support), Chevron (32% support), ConocoPhillips (39% support) and Phillips66 (35% support), we voted for a proposal at UPS to require adoption of GHG reduction targets (27% support), and a proposal at Berkshire Hathaway to measure, disclose and reduce GHG emissions (26% support). Unfortunately, large investments managers who threw their support behind similar proposals last year have now backed off, leaving vote totals short of majority support. Nevertheless, exceeding the 25% threshold remains a critical milestone, since it allows such proposals to be resubmitted in future years, and puts major pressure on companies to respond. Within the financial industry, we also voted for a proposal asking JP Morgan to disclose its fossil fuel financing, and for WellsFargo to publish a climate change policy, both of which received approximately 10% support (enough to resubmit for at least two years). Taken together with the SEC’s proposed climate disclosure rule, these votes signal continued strong momentum in the effort to include climate change in corporate bottom lines.
- Diversity, equity and inclusion were major themes among shareholder proposals this season. We voted more than 20 proposals related to employee or leadership diversity, racial equity, civil rights and discrimination. Board diversity proposals received enough support to re-file at Google (5% support), JPMorgan (5% support), Tesla, and Wells Fargo (11% support). We additionally supported proposals for racial equity audits at Apple (53% support), Chevron (47% support), Comcast (18% support), Johnson and Johnson (62% support), Home Depot (62% support), Salesforce, Tesla, and Wells Fargo (35% support), among others, as well as a proposal that Walmart align its starting wages with its stated support for racial equity (13% support). As always, our votes on board members also reflected our commitment to promoting leadership diversity, with a 34% dissension rate specifically for reasons of insufficient candidate diversity.
- Lobbying and related activities remained a major focus at annual meetings. This season, we voted on nearly 30 proposals related to political and charitable donations and other lobbying activity. In most cases, the focus was greater transparency. While companies often argue that they are following all applicable laws related to lobbying disclosure, these laws do not cover trade association memberships and other indirect forms of lobbying. Nor does legal disclosure necessarily provide insight into why a company may have made a specific contribution, clearly an important factor for investors and customers in deciding whether they feel such activity was responsible, and aligned with the company’s mission. Along with our support for lobbying proposals at companies as diverse as Amazon (which received 47% support), McDonald’s (34% support), Merck (16% support), Meta (20% support), and Walmart (14% support), we also voted for specific disclosure around lobbying alignment with corporate climate goals at Google (18% support), Honeywell (39% support), and UPS (32% support).
- Other opportunities to support human rights this season included votes for additional reporting on possible forced labor at Apple (33% support) and possible child labor in cocoa production and mining at Hershey and Tesla, respectively. We also voted for improved environmental stewardship by supporting better reporting on water risks at Google (22% support) and Tesla, and for reducing the use and/or production of plastics at Exxon (36% support), McDonald’s (41% support), and Philips 66 (49% support).
- One trend that took us by surprise this season was a spate of proposals at a variety of companies that were deceptively titled in favor of “civil rights,” but clearly aimed to undermine corporate progress on diversity and racial equity. When the language of these proposals made their underlying goals clear, we voted against them. Most received little to no support from shareholders, but we still find it disturbing that proponents attempted to co-opt the language of civil rights to reverse progress on racial equity.
Among other themes, we continued to support resolutions pushing for independent board chairs, a best practice we voted for at more than a dozen companies of different stripes this season, from Coca Cola and Pepsi to Abbott and Gilead, GM, Home Depot, JP Morgan, Meta, and others. As usual, we also voted in favor of proposals advocating for greater shareholder rights, including the ability for smaller shareholders to call special meetings and act by written consent.
The expanding push at this season’s corporate annual meetings for reporting on GHG emissions and climate lobbying, outside racial equity audits, disclosure of political and charitable donations, reporting on forced or child labor, and reporting on water risk serve to highlight one of the most important roles activist investors have to play in making change. Without measurement and transparency, nothing happens. A company that is not measuring its GHG emissions, its lack of diversity, or its lobbying expenditure will not take action to address these problems. Likewise, a company that is tracking these metrics without disclosing them is not yet sufficiently motivated to change. Corporate progress on environmental and social issues can only follow from both scrupulous introspection and conscientious disclosure. Fortunately, this proxy season showed that investors increasingly understand this reality: transparency is everything.