What’s ahead for this proxy season? – Lexology


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Alliance Advisors, a proxy solicitation and corporate advisory firm, has just posted its 2021 Proxy Season Preview, a useful introduction into the major themes of this season—well worth a read. First, and most obviously, there is COVID-19 and its direct and indirect impact. The pandemic is having a significant direct impact this year—not just in necessitating recourse to virtual-only annual meetings again this season—but also in focusing the attention of investors and proxy advisors on “how well corporate leaders navigated the crisis and protected business operations, liquidity and the health and welfare of employees.” But the pandemic has also had a somewhat surprising broader indirect impact. While it was widely anticipated that the challenges of COVID-19 would overwhelm any other concerns, the impact appears to be otherwise, as the pandemic has highlighted our increasingly precarious condition, including the effects of climate change, and intensified our social and economic inequality—all issues that are front and center this season. The Preview predicts that environmental and social proposals “are likely to see stronger levels of support in view of last year’s record 21 majority votes… and more assertive investor policies on diversity, climate change and political spending.”


In his 2021 letter to CEOs, BlackRock CEO Laurence Fink applauded the significant efforts by business to “confront climate risk.” Those efforts were, he believed, somewhat remarkable because, when the disruptive effect of the pandemic was first realized in March, conventional wisdom said that the crisis was all-consuming and “would divert attention from climate. But just the opposite took place,” he said, with a speedier reallocation of capital to sustainable investments than he had originally anticipated. Why? In Fink’s view, “the pandemic has presented such an existential crisis—such a stark reminder of our fragility—that it has driven us to confront the global threat of climate change more forcefully and to consider how, like the pandemic, it will alter our lives. It has reminded us how the biggest crises, whether medical or environmental, demand a global and ambitious response.” (See this PubCo post.)

The same phenomenon was recognized in this whitepaper, “Measuring Stakeholder Capitalism—Towards Common Metrics and Consistent Reporting of Sustainable Value Creation,” from the World Economic Forum International Business Council, which stated that we are “in the midst of the most severe series of challenges the world has experienced since World War Two. The COVID-19 pandemic has exposed the fragility of our global systems. It has exacerbated underlying economic and social inequalities and is unfolding at the same time as a mounting climate crisis…. The private sector has a critical role to play.” (See this PubCo post.) And again, as this article from Financial Executives International observed, the COVID-19 pandemic has highlighted “the very issues that have been driving ESG concerns—managing resources, sustainability, community impact and employee well-being.” While it might have been “easy to assume the current crisis may permanently shift attention away from environmental, social and governance (ESG) concerns as management teams grapple with existential issues,” it turned out that “the very actions companies are taking will likely bring them closer to the multi-stakeholder, long-term value principles that lie at the heart of ESG.” (See this PubCo post.)

Below are some of the highlights of the Preview:


The Preview anticipates that, in light of the effect of COVID-19, executive compensation will be intensely scrutinized, particularly the extent to which executives have “shared the pain” with employees and shareholders. The Preview contends that “it will be incumbent upon compensation committees to clearly explain the rationale behind any discretionary adjustments and resulting pay outcomes.” While proxy advisor ISS may be flexible with respect to reasonable adjustments to short-term incentive plans if the business rationale is clear, the Preview indicates, some institutions have been steadily opposed to pay adjustments. The Preview reports that there has already been “some negative investor reaction” in early say-on-pay votes.


In a 2020 paper, Equilar and the Rock Center for Corporate Governance at Stanford dicussed how COVID-19 had affected CEO compensation. Were boards focused more on making sure that CEOs had the right incentives to continue their jobs under trying circumstances? After all, in the case of the pandemic, the trying circumstances are not of their own making. Or are boards more inclined to focus on showing the public and other stakeholders, especially employees, that CEOs are sharing the pain? CEO pay attracts a lot of attention in ordinary times, but in times of severe economic distress when corporate performance and stock prices plummet and companies engage in substantial layoffs, furloughs and pay cuts for employees—who likewise are not responsible for the economic crisis—CEO pay can attract intense scrutiny. If CEOs usually benefit from positive outside events and rising stock markets, should they “be sheltered from reversals in these same factors?” Accordingly, in these circumstances, paying the same or greater levels of CEO comp can seem unfair to the employees and invite shareholder and public criticism. (See this PubCo post.)

How did boards address this issue? The paper had only a portion of the year to look at, but now data for all of 2020 is becoming available. Hot off the press, the WSJ is reporting that

“CEO pay surged in 2020, a year of historic business upheaval, a wrenching labor market for many workers and unprecedented challenges for many leaders. Median pay for the chief executives of more than 300 of the biggest U.S. public companies reached $13.7 million last year, up from $12.8 million for the same companies a year earlier and on track for a record, according to a Wall Street Journal analysis. Pay kept climbing in 2020 as some companies moved performance targets or modified pay structures in response to the Covid-19 pandemic and accompanying economic pain. Salary cuts CEOs took at the depths of the crisis had little effect. The stock market’s rebound boosted what top executives took home because much of their compensation comes in the form of equity.”

The pandemic also focused attention on worker health and safety, leading to favorable votes on human rights due diligence proposals at some companies, the Preview reports. Companies are also being asked to issue reports on efforts to protect workers’ health and safety, to offer paid sick leave and, for some pharmaceutical companies, “to explain how government financial support for the development of COVID-19 vaccines and therapeutics is being taken into account in pricing and access decisions.”


As discussed in this Reuters article, the welfare of workers “is having a moment on Wall Street.” Issues surrounding paid sick leave and safe working conditions have become a top priority for managements and boards; for some investors, they have become “a golden opportunity to apply the principles of ethical investing.” While, previously, investors tended to focus on the environment (“e”) and governance issues such as proxy access (“g”), now social issues (“s”), especially human capital management, have become predominant. The WSJ is also reporting that investors are pressuring companies to “strengthen employee benefits after the coronavirus pandemic exposed shortcomings in U.S. labor policy. Investors have scrutinized how U.S. companies have managed their workforces during the crisis to determine how ready they are for future global emergencies. Issues include offering paid sick leave, counseling, protective equipment, flexible work and the option to work from home.” The article reports that both BlackRock and State Street are focusing on “more immediate ESG issues,” such as employee health and safety. According to one commentator cited in the article, the “crisis presents the best opportunity yet for companies to prove whether they are pledged to stakeholders as many have claimed for years, like workers and local communities, and not just stockholders. ‘This is a litmus test for corporate commitment.’” The next question is whether the concern for employee welfare survives the pandemic? According to one union spokesperson cited in the article, “[i]t is too early to know how the pandemic will affect the balance between corporate social responsibility and pursuit of shareholder value above all else.” As the article notes, “the longer it takes economies to recover from the pandemic, the greater the pressure on companies to cut costs, including jobs.” (See this PubCo post.)


A new initiative organized by The Shareholder Commons has led to the submission of over a dozen proposals to Delaware companies requesting that they convert to public benefit corporations. Other proposals initiated by TSC and others have asked for reports on “the economic and social costs created by traditional corporate structures that favor shareholder returns over other stakeholder interests,” although, the Preview reports, most of those proposals have been excluded as ordinary business. Another series of proposals that the Preview reports have been largely excluded (on the basis of substantial implementation) are “corporate purpose” proposals submitted to signatories of the Business Roundtable’s Statement on the Purpose of a Corporation (see this PubCo post), designed to highlight the dissonance between the essence of the Statement and some of the actions taken by the targeted companies.


The Shareholder Commons is a non-profit organization that uses “shareholder activism, thought leadership, and policy advocacy to catalyze systems-first investing and create a level playing field for sustainable competition.” In essence, TSC seeks to shift the focus from the impact of a company’s activities and conduct on its own financial performance to “systemic portfolio risk,” the impact of the company’s activities and conduct on society, the environment and the wider economy as a whole, which would affect most investment portfolios. What is “systems-first investing”? According to TSC, it is the concept that “investors should work to prohibit all companies from engaging in business strategies that have a negative impact on people and planet. Even if this behavior boosts financial performance at an individual company in an investor’s portfolio, it will damage society, the environment, and the economy, thus dragging down the overall performance of most investment portfolios. It will also reduce the quality of life for the people whom the portfolios are intended to benefit, along with the rest of humanity.” TSC distinguishes its approach from the typical approach to ESG, which, TSC contends, addresses important systemic issues like climate change and racial injustice largely “through the lens of increasing shareholder value at individual companies by promoting efficiency and innovation, enhancing reputation and, frankly, staving off regulation. While we can all celebrate the ability of corporations to ‘do well by doing good,’ it will not be nearly enough to address the systemic risks we face. Shareholders must also use their governance rights to ensure that companies stop ‘doing better by doing bad.’ But investors continue to resist asking individual companies to sacrifice long-term financial return for the good of the economy overall.” (See this PubCo post.)

This year, in particular, the group has helped with submission of a number of shareholder proposals that address issues in its sweet spot—influencing corporate behavior regarding social and environmental systems that affect the economy as a whole. One of those issues has been conversion of traditional corporations to PBCs. In a 2014 article In the Harvard Business Law Review, then-Chief Justice Leo Strine of the Delaware Supreme Court argued forcefully that, notwithstanding the allure of “stakeholder capitalism,” current corporate accountability structures make it difficult for directors to “do the right thing.” However, he contended, there is a way to effectively shift the power balance to create incentives for good corporate citizenship: the public benefit corporation. By articulating new corporate purposes and mandates, in Strine’s view, the PBC tweaks the normal corporate accountability and incentive structure that traditionally has made corporate managers accountable to only one constituency—shareholders. (See this PubCo post.)

What is a PBC? A “public benefit corporation,” according to the Delaware General Corporation Law, “is a for-profit corporation…that is intended to produce a public benefit…and to operate in a responsible and sustainable manner. To that end, a public benefit corporation shall be managed in a manner that balances the stockholders’ pecuniary interests, the best interests of those materially affected by the corporation’s conduct, and the public benefit or public benefits identified in its certificate of incorporation.” To put it another way, as described in this article in the Institutional Investor, a PBC is a corporation that is “legally permitted to consider its impact on people and planet to be equally important as its impact on shareholders’ wallets….” The PBC legislation was signed into law in 2013, but has not achieved quite the anticipated level of enthusiasm, especially among public companies. In the last few years, however, we have witnessed intensifying investor focus on sustainability as a strategy (see, for example, this PubCo post), as well as swelling numbers of companies declaring their commitments to all stakeholders, as reflected, for example, in the Business Roundtable’s adoption of a Statement on the Purpose of a Corporation and the World Economic Forum’s Stakeholder Principles in the COVID Era (see this PubCo post). What’s more, new legislation adopted in Delaware in July 2020 will make it easier to slip in and out of PBC status. To date, only one public company, Veeva Systems, has converted to a PBC—and by an overwhelming favorable vote, suggesting that there may be more public shareholder support for PBCs than was previously thought. (See this PubCo post.) Whether these trends toward sustainability and stakeholder capitalism, together with the new Delaware legislation and the current round of shareholder proposals will fuel a renewed movement toward PBCs for public companies and expecting-to-become public companies remains to be seen. (See this PubCo post.)

Another governance issue that has been reflected in shareholder proposals is worker representation on boards, a common practice in Germany. Some of the proposals submitted by James McRitchie request adoption of a version of the “Rooney Rule” that would require the field of board candidates to include non-management employees. The Preview reports that, so far, the proposals have not received substantial support, but that “McRitchie stated on his website that the proposal was ‘an opening gambit’ and he would have withdrawn if the companies had agreed to take any significant step to increase worker voices on the board, such as appointing a formal workforce advisory panel or designating a director to be a liaison with workers.”


Recent social unrest over systemic racial injustice, especially following the death of George Floyd, has pushed racial inequity into sharp relief. The Preview observes that renewed public attention to this issue has “shifted the focus of diversity initiatives from gender to race and ethnicity,” and investors are looking at corporate diversity at all rungs of the corporate ladder and asking for transparency and change. According to the Preview, “shareholder proposals addressing equality in the workplace have increased four-fold over 2020.”

The Preview indicates that, while only 5.4% of directors at Russell 3000 companies are Black, the number increased in the second half of 2020, “accounting for 18.5% of new board appointments, according to BoardProspects.” The increases may also be due in part to new legislation in California (see this PubCo post) as well as proposed new listing requirements at Nasdaq. (See this PubCo post.) In light of these changes, the Preview indicates that “a number of investors and proxy advisors upgraded their board diversity policies for 2021….However, most have stopped short of setting specific racial/ethnic targets due to a lack of consistent, transparent information. Among large investors, State Street Global Advisors (SSGA) is taking the most aggressive approach this year by penalizing nominating committee chairs at S&P 500 and FTSE 100 boards that do not disclose their racial/ethnic makeup.” Various investor groups have also been pressuring companies to follow the “Rooney Rule,” a policy requiring the consideration of women and minorities for every open board seat.

However, diversity considerations have not been limited to the board. The Preview reports that “[w]orkforce diversity has catapulted to one of the top shareholder proposal categories in 2021 with over 60 resolutions of various types filed.” Over 30 proposals have called for disclosure of companies’ EEO-1 Surveys, which provide “workforce demographics by gender, race and ethnicity across 10 job categories.” According to the Preview, last year, two institutional investors requested disclosure of that data and, since then, that data has been released by approximately 46% of the 100 largest companies by market cap in the S&P 500. Beginning in 2022, the Preview reports, State Street Global Advisors will vote against compensation committee chairs at S&P 500 firms that do not disclose their EEO-1 Survey responses. There have also been proposals asking companies to publish an annual report assessing companies’ DEI efforts, as well as proposals asking companies to apply the Rooney Rule across the workforce. In addition, to provide transparency, several proposals have requested companies to perform independent racial equity audits and to disclose global median gender and racial pay gap data.


California’s new legislation, patterned after its board gender diversity legislation, requires that boards of public companies, including foreign corporations with principal executive offices located in California, include specified numbers of directors from “underrepresented communities.” More specifically, no later than the close of 2021, a “publicly held corporation” must have a minimum of one director from an underrepresented community. A director from an “underrepresented community” means a director who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native, gay, lesbian, bisexual, or transgender. No later than the close of 2022, a corporation with more than four but fewer than nine directors will be required to have a minimum of two directors from underrepresented communities, and a corporation with nine or more directors will need to have a minimum of three directors from underrepresented communities.

Nasdaq’s new proposal would adopt a “comply or explain” mandate for board diversity for most listed companies and require companies listed on Nasdaq’s U.S. exchange to publicly disclose “consistent, transparent diversity statistics” regarding the composition of their boards. Under the proposal, Nasdaq-listed companies, subject to certain exceptions, would be expected to have at least one director who self-identifies as a female, and at least one director who self-identifies as an Underrepresented Minority or LGBTQ+. The term “Underrepresented Minority” reflects the EEOC’s categories and would be construed in accordance with the EEOC’s definitions. The term includes Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, and two or more races or ethnicities. If a company did not satisfy the new diversity “expectations,” it would be required to explain, in its annual proxy statement or on its website, why it “does not have at least two directors on its board who self-identify in the categories listed above.”


The Preview suggests that proposals related to climate “may gain momentum this year due to more favorable investor voting policies.” For example, in his 2021 letter to CEOs, BlackRock’s Fink asked companies to disclose a “plan for how their business model will be compatible with a net zero economy”—that is, “one that emits no more carbon dioxide than it removes from the atmosphere by 2050, the scientifically-established threshold necessary to keep global warming well below 2ºC.” (See this PubCo post.) And BlackRock Investment Stewardship has stated that, “where corporate disclosures are insufficient to make a thorough assessment, or a company has not provided a credible plan to transition its business model to a low-carbon economy, including short- medium- and long-term targets, we may vote against the directors we consider responsible for climate risk oversight.” (See this PubCo post.) The Preview reports that, where companies have not provided adequate disclosure about material risks or “support for the proposal would accelerate progress,” BlackRock will be more likely to support shareholder proposals. For the second half of 2020, BlackRock, globally, voted in favor of 89% of environmental proposals and 50% of all E&S proposals.

According to the Preview, the climate-related proposals for this year are primarily focused on “carbon transition planning and setting GHG emissions reduction goals.” One particular target of climate activists recently has been financial institutions’ financing of fossil fuel assets; however, the key proponent withdrew all of its 2021 proposals after the major banks “pledged to reduce their financed emissions to net-zero by 2050 and to disclose and measure their progress.” The Preview also reports that several proposals have been submitted for 2021 “calling on carbon-intensive firms to proactively lobby—both directly and through their trade associations—for climate policies aligned with the Paris Agreement goals.” One emerging trend identified in the Preview is “activist stewardship,” passive investors together with activist hedge funds conducting proxy fights to promote desired change at companies that have otherwise been resistant. Another new initiative has been “say on climate” proposals, which the promoter seeks to have adopted by at least 100 S&P 500 firms by the end of 2022.

Political Activity

The Preview predicts that shareholder support for proposals requesting disclosure of political spending and lobbying “is likely to rise in the 2021 proxy season. Last year, seven resolutions received majority votes and another 15 garnered support in the 40% range. According to Majority Action, an additional eight proposals would have been approved if BlackRock and Vanguard Group had supported them.”


Large institutional investors have, for the most part, shied away from political spending disclosure proposals, at least historically. In some ways, that seems to be a bit paradoxical in light of the Big 4’s expressed concern with sustainability, given that corporate political spending could well be devoted to purposes inconsistent with that goal. For example, in its 2019 voting guidelines, asset manager BlackRock made clear that the bar for support of political spending proposals at that time was relatively high, taking the position that, when

“presented with shareholder proposals requesting increased disclosure on corporate political activities, we may consider the political activities of that company and its peers, the existing level of disclosure, and our view regarding the associated risks. We generally believe that it is the duty of boards and management to determine the appropriate level of disclosure of all types of corporate activity, and we are generally not supportive of proposals that are overly prescriptive in nature. We may decide to support a shareholder proposal requesting additional reporting of corporate political activities where there seems to be either a significant potential threat or actual harm to shareholders’ interests, and where we believe the company has not already provided shareholders with sufficient information to assess the company’s management of the risk.”

This reluctance of institutional shareholders to step up with regard to political spending proposals has come under fire from none other than former Delaware Chief Justice Leo Strine. The title of this 2018 paper, “Fiduciary Blind Spot: The Failure of Institutional Investors to Prevent the Illegitimate Use of Working Americans’ Savings for Corporate Political Spending,” communicates the bottom line pretty clearly. While Strine congratulates the “Big 4” institutional investors, BlackRock, Vanguard, State Street and Fidelity, for recognizing “that unless public companies act in a manner that is environmentally, ethically, and legally responsible, they are unlikely to be successful in the long run,” he chastises them for continuing “to have a fiduciary blind spot: they let corporate management spend the Worker Investors’ entrusted capital for political purposes without constraint.” (In the paper, “Worker Investors” are American workers that, through 401(k) and 529 plans, must invest largely in mutual funds to save for retirement and college and whose capital is effectively “trapped” until their retirement.) (See this PubCo post.)

However, recently, some institutional investors have shifted gears and are starting to support some of these proposals for political spending disclosure. The Preview reports that the Center for Political Accountability found that “40 out of 69 large investors increased their backing of political contribution resolutions between 2019 and 2020.” And even BlackRock has changed its tune to some degree, indicating that it “will seek confirmation from companies—either through engagement or disclosure— that their corporate political activities are consistent with their public statements on material and strategic policy issues. It expects companies to monitor the policy positions taken by their trade associations and provide an explanation where inconsistencies exist.” According to the Preview, Vanguard “also appears to be moving away from its longstanding opposition to politically-focused resolutions.” Both asset managers supported a lobbying disclosure proposal for the first time.


The nonpartisan Center for Political Accountability reported in its June newsletter that support for shareholder proposals in favor of political spending disclosure hit record highs this past proxy season. For proposals using the CPA model resolution submitted to shareholder votes at 22 companies, the average vote in favor was 41.9%, up from an average of 36.4% last year. What’s more, the proposal received majority votes in favor at four companies plus one tie (50%) vote, and over 30% of the vote at 18 companies. (See this PubCo post.)

Notably, in questioning by the Senate Committee on Banking, Housing and Urban Affairs, nominee for SEC Chair, Gary Gensler, was asked by both sides about political spending disclosure. Gensler replied that his position on the issue would be grounded in economic analysis and the courts’ views of materiality as the information reasonable investors want to see as part of the total mix of information. Gensler added that he considered the 80 shareholder proposals submitted last year on the topic and the 40% vote in favor as a strong indicator. In light of that level of investor interest, political spending disclosure was something he thought the SEC should consider.

Following the events of January 6, a number of companies announced that their corporate PACs had suspended—temporarily or permanently—their contributions to one or both political parties or to lawmakers who objected to certification of the presidential election. The Preview considers these suspensions to be “largely symbolic” because most “are temporary and the amounts involved are relatively small.” However, since then, “companies, trade groups and asset managers are facing heightened pressure to reexamine their approaches to political spending.” Various groups have “asked BRT members to permanently end all political contributions, including through direct donations to politicians, PACs, Super PACs and 527 committees or through trade associations and social welfare organizations” or have advocated that large asset managers “not only hold their portfolio companies accountable for their political spending practices and disclosure—including by voting against directors—but also to reassess and disclose their own political giving.” The Preview reports that some asset managers have “suspended PAC donations to the Republican objectors,” while others “have paused all PAC activity.”


After January 6, The Conference Board conducted a survey to find out the extent to which companies suspended PAC activity. It turns out that the public announcements reflected only a slice of the actions taken by corporate PACs. The survey, conducted between January 25 and February 2, found that, among respondents, about 55% suspended their PAC contributions, split almost evenly between those that stopped contributions to all members of Congress (28%) and those that stopped contributions only to lawmakers who voted against election certification (27%)—and only 3% of those were permanent decisions; and 45% took no action, including some that did not have a PAC, some that were still undecided about what action to take and some (19%) that had decided against any response. Only 28% announced the actions they were taking regarding PAC contributions both internally and externally, while 25% announced actions only internally; almost half (46%) made no announcement. With respect to those intending to resume contributions in the future, over 50% were unsure or did not indicate what steps they were planning to take prior to resuming contributions; 37% said that they needed to gather more information on potential recipients; 21% planned to revise the criteria for contributions “to address supporting democratic processes”; 16% intended to change the approval process; and 8% planned to revise the criteria to address supporting violence.

Surprisingly, most corporate boards seem to have played little role in these decisions: only 4% of respondents indicated that the company’s board of directors made the decision and only 2% of boards initiated the discussion; 27% of PACs just “informed” their boards of the decision; only 11% consulted with their boards and 7% informed their boards beforehand; and 30% responded “other,” with many noting that the board was not involved or that its involvement was not applicable. (See this PubCo post.)

In light of these PAC suspensions, Senators Chris Van Hollen and Robert Menendez have reintroduced the Shareholder Protection Act of 2021 to mandate not only political spending disclosure, but also shareholder votes to authorize corporate political spending. According to the press release, “[s]ome public companies’ decision to suspend or reevaluate further political donations is an acknowledgment that political donations can significantly affect a company’s reputation and financial health. Without public disclosure of political contributions, shareholders are left in the dark about decisions that may affect a company’s bottom-line, and in the case of the January 6th insurrection, decisions to support organizations and campaigns that may have advocated stopping the certification of a free and fair election.”

The bill would amend the Exchange Act to add a requirement that proxy statements contain a description of any expenditure for political activities (as defined) proposed to be made in the coming fiscal year that has not been authorized by a vote of the shareholders, including the proposed total amount, and provide for a separate vote of the shareholders to authorize these expenditures. Companies would be prohibited from making any political expenditures that have not been authorized by a vote of the holders of the majority of the outstanding shares.

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