A stricter approach for governance and sustainability led to a higher number of votes against management during the AGM season.
Hundreds of votes were cast against companies with inappropriate remuneration packages under the Say on Pay framework, and against most of those not doing enough to tackle their emissions under corporate Say on Climate proposals.
Historically, governance concerns are the main reason for shareholder dissent. But as environmental and social topics are becoming increasingly urgent, they are increasingly a reason why shareholders oppose management resolutions.
Resolutions were also opposed when insufficient progress was made on diversity, by directly voting against the reappointment of directors, often the chairman or other accountable board members.
It made for a lively voting season at the annual general meetings of more than 5,000 companies for Robeco’s voting specialists Antonis Mantsokis, Diana Trif and Lucas van Beek. They opposed at least one management proposal at 60% of the AGMs if expectations for environmental, social and governance (ESG) issues were not met.
Topics such as executive pay produced the most votes against management recommendations as a percentage of proposals in that category. Robeco did, however, support most ESG-related shareholder proposals, as shown in the chart below.
“In recent years we have expanded our voting policy to hold companies accountable not only for aspects such as a lack of independence on boards, insufficient board gender diversity or poor compensation practices, but also for not taking sufficient action on climate change or on human rights and social concerns,” says Mantsokis, looking back on the voting season.
“For the Say on Pay, we assess a multitude of factors. We look at pay magnitude, at the alignment of pay with the company’s performance, the pay structure and transparency about it. What we saw this voting season were many issues related to a lack of alignment between pay and performance.”
“And we continue to see discretionary adjustments to pay outcomes. Many companies continue to be negatively impacted as a result of Covid, and therefore under the initial structure of most compensation plans, executives often should end up with lower bonuses. Yet, we have often seen companies makes some adjustments so that the executives end up with a bonus after all.”
There was a major focus in the Say on Climate votes on what companies said they were doing to reduce emissions or decarbonize. “Many companies are making too little progress on climate in relation to their long-term commitments,” says Trif.
And where insufficient progress is being made, Robeco will hold the responsible directors to account by voting against the reappointment of directors, including the chairman.
“Over the last few years we have raised our concerns regarding the climate performance of these companies by voting against either the chair of the board, or the accounting report,” Trif says. “Our approach was to vote against if the companies were not taking sufficient steps in terms of climate, using benchmarks such as Climate Action 100+ and the Transition Pathway Initiative as the starting point for our analysis.”
Diversity and inclusion is another issue that raises temperatures at AGMs, given the persistent lack of women on boards, or corporate structures that recognize the skills of minorities.
“We were expecting social to have a prominent place on the agenda, and indeed that was the case,” says Mantsokis. “We saw a lot of resolutions focusing on promoting gender equality, disclosing gender pay gap and promoting living wages.”
The drive for diversity has, however, caused a backlash in certain places, particularly in the US, where some are concerned it means hiring people who do not have the right skills, harming profitability. This has led to an ‘anti-ESG’ movement of people who file resolutions against social topics.
“This actually constitutes a concern for us – namely the fact that the number of anti-ESG proposals really increased,” says Trif. “These are proposals submitted by proponents that actually aim to hinder a company's efforts to advance ESG goals. A lot of anti-ESG proposals deal with social topics, that aim to hinder efforts to advance diversity or inclusion.”
“There has been a lot of social change over the last year with a focus on promoting diversity, inclusivity and discussing these topics more openly. Certain groups are trying to find any ways to halt this discussion. The bar has been raised, and some specific schools of thought are trying to reverse it.”
So, how do the companies react when their resolutions are opposed, particularly when Robeco votes against the reappointment of directors? Do they take it personally?
“I think it really depends on the topic, the agenda item, and how we communicate with many companies,” says Michiel van Esch, senior manager for active ownership at Robeco, and a veteran of talking to companies directly. “We do have a dialogue, where we reach out to the company to give them some more information about our vote.”
“Companies generally welcome the opportunity to have a discussion and ask for feedback on how they can implement changes that could lead to higher support rates in the next year’s AGM. So, they don’t storm off in a huff.”
“They usually schedule a follow-up call where they can discuss with us what changes they want to implement and they again ask for our feedback. We think this is a positive development and we welcome it. Companies are really more open to hearing shareholder views.”
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