Investor priorities for the 2024 proxy season

More than 100 investors, corporate executives and advisors assembled in New York last week for Diligent Market Intelligence’s (DMI) Proxy Season Preview, the first time the event has been held. Speakers highlighted the importance of identifying risks and best practices in shareholder engagement.

Across seven sessions, along with an introduction from Diligent President & CEO Brian Stafford, participants got a first look at shareholder activism, ESG, governance and compensation trends.

Below is a selection of key highlights and takeaways coming out of the conference. To learn more about how boards can prepare for the 2024 proxy season, keep an eye out for our Proxy Season Preview 2024 report in March 2024 or request a demo of Diligent Market Intelligence.

Amid an activism resurgence, more companies cite “shareholder activism” as a risk

Shareholder activism has returned to pre-pandemic levels, with 982 companies subject to activist campaigns globally in 2023, a 4.6% rise compared to a year prior and the highest level since 2019. As a result, activism is making its way onto more companies’ radars.

Key takeaways:

• As activist levels increase, so too do the number of companies citing activism as a risk. In 2023, 23.4% of Russell 3000 companies disclosed shareholder activism as a risk in their 10-K reporting, up from 21.4% a year prior. Speakers at the event warned that such disclosures could raise concerns among investors that the company is not committed to addressing problems related to business strategy and ensuring meaningful engagement with investors.
• The main criteria activist investors look for in an activist situation include declining margins or questionable decisions surrounding capital allocation and/or mergers and acquisitions (M&A). A lack of industry experience on the board is also a red flag for investors.
• Amid a rise in settlements between activist and issuers, companies need to ensure that the initial issues raised are being addressed through settlements, to ensure the broader shareholder base feels their concerns are being addressed and to avoid further escalation.

Universal proxy has turned proxy fights into bona fide political campaigns. Directors are no longer behind the curtain, instead having to present their credentials and expertise.

Townsend Belisle, founder and CEO, Haystack Needle

Investors call on companies to enhance ESG oversight

Despite a rise in anti-ESG rhetoric from various state policymakers in the past 12 months, global regulators are clamping down on ESG reporting, prompting shareholders to seek more ambitious climate disclosure from issuers.

Key takeaways:

• Companies are facing record levels of ESG shareholder proposals, with 338 environmental and social proposals subject to a vote at U.S.-listed companies in 2023, up from 148 and 281 in 2021 and 2022, respectively.
• In 2024, investors are looking for companies to provide robust oversight and reporting on both director skillsets and human capital management oversight.
• Despite the Securities and Exchange Commission’s (SEC) Climate Rule having yet to be finalized, investors consider Scope 3 emissions to be material risks and other regulators and international standards include it in their reporting requirements. Shareholders are urging companies to collect data sooner rather than later.

Companies are not sure what the SEC’s final climate rules are going to be, but you are going to have to do the consolidated approach. Start collecting the data now.

Andrea Ranger, shareholder advocate, Green Century Capital Management

Disclosure is king when it comes to compensation

Shareholder activists, ESG advocates and institutional investors alike look at compensation to understand whether a board is serious about its stated strategy have aligned incentives. Panelists reinforced the importance of robust disclosure to justify adjustments to ratings, alongside the importance of performance-based pay drawing from a variety of metrics.

Key takeaways:

• When it comes to compensation, investors are supportive of long-term incentive plans (LTIP) that are over 50% performance-based across three-to-five-year periods. Disclosure and rationale on why decisions have been made is also important, with shareholders looking to understand why metrics or ratings may have been adjusted.
• Among the main concerns investors share about pay plans include performance-based pay being wholly reliant on total shareholder returns (TSR) and the frequency of outsized one-off grants outside of the normal equity cycle. Many investors want to see incentives tied to the most material strategic objectives, including where compensation is linked to ESG goals.
• More investors are pre-disclosing votes or issuing rationales to help companies understand their concerns and ways in which these can be remedied.

You can't win support, you either meet our guidelines or you don’t. To play it correctly, companies should be clear and transparent in their disclosures. If they are making changes, run it by investors.

Stewardship executive, speaking on Chatham House Rules panel

To ensure productive engagement that maximizes sustainable shareholder and stakeholder value, investors, issuers and advisors should work off the same insights. That’s why, in 2023, we launched Diligent Market Intelligence, the only data provider with coverage and expertise across topics such as shareholder engagement, corporate governance, executive compensation and ESG, as well as a trusted platform used by many of the world’s most important organizations.

Diligent Market Intelligence helps companies stay ahead by providing unrivalled global coverage of activism campaigns, a comprehensive voting database covering thousands of global investors, peer compensation benchmarking tools, and direct access to ESG metric scores and breakdowns.

To see more of the insights we’re serving to our users on a daily basis, request a demo of Diligent Market Intelligence today.