Investor support for a wide range of shareholder proposals on social and environmental issues increased in 2018; 12 proposals earned majority support, even on issues that previously received little shareholder approval. This appears to show increasing traction among investors for a broad range of “non-financial” concerns, which is reflected in increasing support from large mutual funds, proxy advisors and other investors. It is particularly notable with respect to climate change.
The majorities occurred on hot-button issues that attracted support from the same big mutual funds that changed the landscape of proxy voting in 2017. In 2018, the mutual funds expanded the range of issues they supported, producing a 69 percent vote in favor of gun safety reporting at Sturm, Ruger and 52.2 percent for the same resolution at American Outdoor Brands. Investors also gave majority support for reporting on the risks associated with the opioid crisis— 62 percent at Depomed and 61.4 percent at Rite Aid. (Table, p. 83, shows all the majority votes.) Majority support occurred for eight more proposals on climate change and sustainability disclosure, including 80 percent supporting sustainability reporting at Rite Aid.
A total of 460 resolutions were filed on social, environmental and sustainable governance topics, down some from the nearly 500 in 2017. Proponents withdrew 210 proposals and 65 were omitted after company challenges at the SEC. Eight did not go to votes for other reasons, usually because of a merger.
Proponents withdrew most of the resolutions seeking reports on how companies are planning to adjust their business models so the goals of the Paris Climate Treaty can be met, because companies agreed to issue the reports. Yet few energy companies appear to be contemplating fundamental business model changes that will be needed to keep global temperatures in check. Support grew for resolutions seeking goals for greenhouse gas (GHG) emissions goals, though, as well as on other topics like methane leakage and deforestation. Despite high investor support for disclosure of GHG goals (35 percent on average), the SEC no-action letter at EOG Resources set the stage for a potential showdown over the issue in 2019, as discussed on p. 8.
Investor support for political activity proposals continued its upward climb, too, although these proposals have yet to attract support from the big mutual funds. Some shareholder proponents of these resolutions feared SEC Staff Legal Bulletin 14J in 2017 might knock out some proposals, and several companies argued vigorously that the bulletin supported omitting proposals on the grounds they are not significantly related to their underlying businesses. But the SEC turned back these corporate requests, noting previous levels of investor support of more than 20 percent.
Proposals seeking fair treatment and equal pay for women and people of color, combined with those seeking more diverse boards of directors, made up the third main theme of proxy season in 2018. Three of the high votes (above 40 percent) were for equal employment opportunity proposals. Proponents ended up withdrawing most of the 34 board diversity resolutions after companies agreed to change their nominating procedures to seek more diverse board candidate slates.
In addition to the new gun safety and opioid proposals noted above, a key development in 2018 was a raft of about two dozen proposals asking for links between executive compensation and a range of social and sustainability issues. Proposed links between drug pricing, business risks and pay notably attracted support in the 20-percent range, for the first time.
The total number of shareholder resolutions filed in 2018 about the environment, social issues and sustainable governance dropped to 460, down from 2017’s record of 494. The drop does not signal decreased investor interest in these issues, however; rather, increased engagement between investors and companies means proponents’ concerns are being addressed in many cases, negating their need to file proposals. Social issues still dominated in 2018, sustained by continued interest in political activity, decent work and workplace diversity—in addition to human rights and a few more topics. Environmental proposals have remained relatively constant over time but have fallen slightly in the last two years, while sustainable governance resolutions continue to increase. Additionally, filings from political conservatives have stood at a relatively constant low level and dropped a bit recently. (Graph, p. 75.)
Withdrawn proposals (210) exceeded the number voted on (177) for the first time ever. Omissions fell to 65 from 77 last in 2017. The number voted was down from 237 last year, the lowest of the decade. (see Graph below)
The increase in withdrawals came at least in part because of some strategic retreats by proponents who judged they would lose company challenges and withdrew before any SEC response to company arguments. But investors also struck deals as company agreed to act, on a host of issues, as in the past.
There was a marked jump in withdrawn proposals about social issues. (Graph right). On particular topics, social issues withdrawals rose notably for gender pay equity (26 withdrawn, up from 16 in 2017), EEO reporting (16, up from seven) and political activity
(23, up from 18). For the environment, withdrawals rose but not dramatically—notable was an increase for carbon asset risk reporting (16, up from nine). On sustainable governance, there were lots of withdrawals on board diversity (29, up from 25) and sustainability reporting (20, up from 15).
The rate of omitted proposals dropped, despite the new legal bulletin. But the omission rate for climate change proposals rose sharply in 2018, driven by omissions on Rule 14a-8(i)(7), “ordinary business.” This reason was used in 2018 more than it ever has been in the past.
Average support rose to an all-time high of 25.4 percent, up from 21.4 percent in 2017. From 2016 to 2018, 27 resolutions not opposed by management have earned majority support; 46 have done so since 2010. Support is highest for climate change sustainability reporting resolutions, as well as those seeking disclosure of corporate political activity and diversity data.
High scoring proposals: In addition to the 12 majority votes in 2018, another 19 earned between 40 percent and 49 percent (table p. 83) and 37 more earned between 30 and 39 percent. Strikingly, all but one of the resolutions that earned the highest support dealt with new issues of intense public debate—gun safety (American Outdoor Brands and Sturm, Ruger) and the opioid crisis (Depomed, now Assertio, and AmerisourceBergen). As in 2017, more of the top-scorers related in some way to the environment and sustainability (17) than any other categories; six more concerned election spending or lobbying. Three were about equal employment opportunity and one concerned student loans.
Proportion of high scorers up: As the graph at right shows, the proportion of majority votes and high-scoring resolutions is climbing.