Bracing for the 2022 Proxy Season

Buckle up for the 2022 proxy season: for many companies, it will be a bumpy ride.

The Red Zone. The following charts map shareholder proposals in the 2021 proxy season, based on the percentage that went to a vote and the level of support received by those that were voted on. The upper righthand quadrant of each chart is the red zone, showing proposals that went to a vote at least 50% of the time and that received at least 30% average support.

As you’ll see, shareholder proposals on corporate political activity and climate change show up in the red zone for E&S proposals. And virtually all governance proposals appear in the red zone as well. Look for these, and others, to be areas of contention in 2022 as well.

The charts come from our latest report, 2022 Proxy Season Preview and Shareholder Voting Trend (2018-2021), featured earlier this week in Fortune and produced with ESG analytics firm ESGAUGE, in collaboration with Russell Reynolds Associates and Rutgers University’s Center for Corporate Law and Governance.

The main report is accompanied by six briefs focusing on key areas: Environmental & Social Proposals in General, Human Capital Management Proposals, Environmental Proposals, Corporate Political Activity Proposals, Governance Proposals, Company-Sponsored Proposals.

I encourage you to read the reports, which are filled with information and insights gained from an analysis of the data, a Chatham House Rule discussion with some of America’s leading governance experts, and a webcast held earlier this year.

Meanwhile, here are three steps companies can take now to be ready for the proxy season:

• Prepare the board for a new (and potentially more intense) wave of shareholder proposals. Be sure your directors and your C-suite colleagues do not evaluate the success of proxy season by the traditional metric of minimizing the number of proposals that go to a vote. Instead, they should focus on whether the company has maintained an ongoing and constructive dialogue with its major investors, which is more important than any vote on a precatory shareholder proposal.

• Prepare for year-round shareholder engagement. There are a lot of “new faces” at investors to bring up to speed on your ESG program, as asset managers are expanding their stewardship teams, have had significant turnover, and are including more portfolio managers in engagements on ESG issues. Schedule time to meet with these new players apart from the proxy season and off-season engagements. At the same time, ensure your directors are prepared to engage on ESG issues – it’s best to involve your directors proactively, but at a minimum, be sure they’re ready well in advance of when an investor asks to meet with them.

• If it's not too late, analyze institutional investors’ proxy voting guidelines before you file your proxy statement to ensure your disclosures (and other communications) address the issues your key investors care about.

The Convergence of Compliance, Risk Management, and ESG

On February 9th, we held a Roundtable with over 160 executives from ESG Center Member companies on the convergence of compliance, risk management, and ESG programs. The ESG Center will issue a report in April based on the discussion and a survey of over 120 executives.

In the meantime, here are three key insights from last week’s discussion.

• Collaboration and alignment among, rather than full integration of, the three areas probably make sense. There is a convergence underway of compliance, risk management, and ESG, driven by the need to bring three areas together to address urgent challenges such as climate change, supply chains, and human capital management. As companies’ focus on sustainability grows, so does the natural intersection of these areas. In addition, many companies are adjusting their organizational structures to make collaboration easier.

  • At the same time, it’s important to recognize that these are three distinct disciplines – and it’s critical for compliance to maintain its independent control function and for risk management to provide an objective assessment of business initiatives. Companies may therefore want to focus not on full-blown integration but on analyzing the priorities of each area and where they intersect. A simple Venn diagram, like the one below (presented for purely illustrative purposes), shows how the three areas can be focused on the same general issue – such as climate – but bring different perspectives and have somewhat diverging priorities.

  • While many companies are focused on how compliance and risk management can support their sustainability programs, the sustainability team can also help the other two functions. Our survey indicated ESG/Sustainability is the area that can benefit the most from greater collaboration.

• Indeed, compliance can set the baseline for an ESG program, as companies are required to comply with laws that are focused on stakeholders (customers, employees, business partners) and that address ESG issues. A robust compliance program typically has senior management support, an accountable leader, training, sufficient resources, integration with corporate culture, and periodic evaluations – also a good model for ESG programs. And risk management brings skills and tools that can be applied to ESG risks.

  • At the same time, compliance and risk management can benefit from the “multistakeholder” approach that the sustainability team uses. Companies can evaluate their compliance and risk management programs through the lens of how those two programs impact stakeholders.

• The most important role the board can play is ensuring that sustainability, risk management, and compliance are incorporated into the company’s business strategy. As shown in the chart below, executives believe their boards are doing a good job in overseeing risk management, but are lagging when it comes to ESG. One practical suggestion is to form a task force or subcommittee composed of a representative from each of the board’s standing committees to work with management in assessing the way the board oversees ESG issues, including in evaluating the company’s strategy.