Proxy season is fast approaching for boards around the world. And the winds of change are blowing across their tables.
BlackRock, Vanguard and State Street Global Advisors recently issued their voting policy updates for 2022 with a number of common themes. These included an emphasis on climate, the transition to a net-zero economy, diversity at the board level and throughout the workforce, and effective human capital management.
Wait, there’s more. According to a recent report from Norton Rose Fulbright, Proxy season 2022: ESG matters, virtual meetings and more, “For 2022, the main ESG priority for various institutional investors and their advisors will remain climate-related issues.”
In the US, the Securities and Exchange Commission will impose tighter scrutiny on companies that use traditional ballot-battle tactics — such as relying on their prior arguments and past SEC decisions to win the agency’s support — to quash shareholder proposals on ESG issues.
The list of potential issues has never been longer, so how should directors get ready? Here are seven key areas to focus on now.
Stronger ESG action and disclosure
The good news is that the recently formed International Sustainability Standards Board (ISSB) will be setting what many hope to be the gold standards for reporting in the middle of this year.
Climate change action and disclosure
Shareholders will be watching carefully; is your company really doing enough? We’ve already seen board members lose their seats over….transition plans
Majority Action has issued a proxy voting guide to help investors vote against directors at companies that are failing to introduce plans to help limit global warming to 1.5℃. That followed an analysis of the proxy votes of the largest institutions that are part of Climate Action 100+, which boasts over 600 investor members with $65 trillion in assets. It found that 24 cast their ballots in favour of each incumbent board director at most of the 23 US-based companies that had missed all the initiative’s Net-Zero Company Benchmark indicators. Over half — 29 out of 47 investors analyzed — voted for more than 90% of directors at Climate 100+ “focus companies” in the US, which are those that produce the most GHG emissions.
Board diversity
Bottom line: Nasdaq requires it and your company should too. Board directors must make an honest appraisal of the composition of the board around them. Everyone will be looking closely, so you must do as well. If it’s male, pale and stale, then what are your plans to change that? Quickly.
Compensation and executive pay
Board governance issues will be table stakes. Directors must examine the difference between the earnings of the CEO and senior executives and those at the bottom rung of the pay scale. Deloitte data paints a stark contrast: the average ratio of the S&P 500 between CEO to worker was 163:1. According to the Economic Policy Institute (EPI), CEO compensation has risen a massive 1,322% since 1978, while an average worker has seen their pay packet climb a mere 18%. That trend has accelerated during the COVID-19 pandemic. As they say on the London Underground: Mind the gap.
Human capital management
Last year will be remembered as the Great Resignation. Employees flooded to the exits like never before, with 4.5 million people quitting their jobs in the US in November 2021 alone. It wasn’t all about pay. Employee engagement, employee satisfaction, talent value, talent retention policies, benefits, work-life balance and positive contribution to climate change were all factors. That flood could become a tsunami if companies don’t mend their ways and will be a big factor in this upcoming proxy season.
Cybersecurity
Ask yourself: how safe is data at your company? Are you being spied on? Are people inside your organization selling data? Blockchain technology and cryptocurrencies are propelling companies and boards into a brave but confusing new world, with their transparency and security as major selling points. Make sure your board has locked the doors, shut the windows and knows where the keys to IT are.
Competence
Competent in all of these areas including climate. For those board directors who fear they will lose their board seat. Above all, education is key, and that’s where we come in! Take a look at our programs.
If you’d like more, JD Supra published this handy Proxy Drafting and Annual Meeting Housekeeping Checklist.
Mathew Loup is Competent Boards’ Director, Marketing & Communications. Connect with him on LinkedIn.
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