In a tumultuous year in which a global pandemic, a racial justice movement, and a contentious presidential election have gripped the United States, corporate shareholders are engaged in environmental, social and governance issues as never before, according to a new report by Intelligize, the industry-leading provider of corporate compliance management solutions.
The 2021 Playbook on ESG Shareholder Proposals analyzes several socially focused proposals on diversity, human capital and political spending that shareholders approved in 2020 and identifies several trends: Shareholders exhibited a skepticism of corporate rhetoric that could not be supported by hard facts, instead favoring data-backed arguments. Shareholders also declined to reward technical arguments or those that asked them to take a company’s commitment to an issue at their word. Most notable were shareholder voting results themselves, which reflected record levels of interest and support for ESG initiatives.
It also outlines key issues for companies to watch in the upcoming 2021 proxy season and highlights broader patterns that likely will continue, including shareholders being quick to point out companies’ real or perceived unfair practices.
“Shareholder voting participation reached a 14-year high in last year’s proxy season,” Intelligize playbook coauthor Rob Peters said. “Virtual annual meetings that featured shareholder proposals experienced higher attendance and more engagement than those without, and we foresee similar activity in 2021.”
Key Takeaways from Shareholder Proposals in 2020:
Diversity: It is no longer a valid position for companies to dispute the benefits of board and workforce diversity. Those benefits are well established and backed by studies that proponents will eagerly cite. Institutional investors and proxy advisors are recommending votes against directors at companies that fail to live up to their promises on diversity and inclusion.
The Playbook examines four shareholder proposals centered on workforce and board diversity, including:
- Expeditors International (NASDAQ: EXPD)
- Fastenal (NASDAQ: FAST)
- Fortinet, Inc. (NASDAQ: FTNT)
- National HealthCare Corp. (NYSE: NHC)
Human Capital: Though relatively new as a shareholder focus, human capital has already become a topic of intense interest to investors, companies and the Securities and Exchange Commission, which has begun to require human capital disclosure under Regulation S-K. Additional disclosures related to executive compensation and other areas may be on the horizon in the new presidential administration.
Proposals examined in this area include:
- Genuine Parts Company (NYSE: GTC)
- O’Reilly Automotive (NASDAQ: ORLY)
- McDonalds Corp. (NYSE: MCD)
- Starbucks Corporation (NASDAQ: SBUX)
Political Spending: When companies fare poorly on political transparency measures, shareholders can be expected to favor proposals requiring more disclosure. Companies should improve their policies and engage with shareholders before automatically resisting such a proposal addressing political spending.
Political spending shareholder proposals discussed in the Playbook were:
- Activision Blizzard (NASDAQ: ATVI)
- Centene Corp. (NYSE: CNC)
- J.B. Hunt Transport Services (NASDAQ: JBHT)
- The Western Union Company (NYSE: WU)
Intelligize’s proxy-season playbook also anticipates shifts in the approach to securities regulation in Joe Biden’s incoming presidential administration. Significant issues include:
- A rollback of Rule 14a-8. Under the outgoing administration, the SEC increased stock ownership requirements for submitting shareholder proposals. While these could be subject to reversal, they will be in place for this season.
- Enhanced environmental disclosure: President-elect Biden’s plans explicitly call for publicly traded companies “to disclose climate risks and the greenhouse gas emissions in their operations and supply chains.”
- A shift away from principles-based disclosure: ESG topics figure prominently in the philosophical battle between the principles-based disclosure rule favored by outgoing SEC Chairman Jay Clayton and prescriptive rules that require companies to disclose more specific data points.
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Intelligize is the leading provider of best-in-class content, exclusive news collections, regulatory insights, and powerful analytical tools for compliance, transactional and investor relations professionals.
Intelligize offers a web-based research platform that ensures law firms, accounting firms, corporations, and other organizations stay compliant with government regulations, build stronger deals and agreements, and deliver value to their shareholders and clients. Headquartered in the Washington metro area, Intelligize serves Fortune 500 companies, including Starbucks, IBM, Microsoft, Verizon, and Walmart, as well as many of the top global law and accounting firms. In 2016, Intelligize became a wholly owned subsidiary of LexisNexis®, a leading global provider of content-enabled workflow solutions designed specifically for professionals in the legal, risk management, corporate, government, law enforcement, accounting and academic markets.
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