To Vote (in favour) or not to vote – that is the question.
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Article Type
Sustainability Soapbox
Topic
Responsible Investing
Published
April 19, 2024
Read time
4 mins
Author
Andrew Woods
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The ability to submit requisitioned resolutions has long been an important shareholder right and has historically helped shape sustainability and governance practices across the globe. Different jurisdictions have differing threshold requirements for the filing of a shareholder resolution.

 

In the UK and much of Europe, a 5% shareholding is required. This can be achieved either via an individual institutional holding or through a combination of smaller shareholdings. Aegon Asset Management UK has previously participated in such collective filings in presenting climate related resolutions at some oil majors. Our experience suggests that they were successful in helping to shape directional change. In the US, a monetary value is required, which reduces with the length of time shares are held. If held for three years, a holding with a value of just $2,000 is required. This helps explains why the US has a far higher number of shareholder resolutions which are generally filed by small investors - often non-governmental organisations and individuals.

 

With this large quantity of shareholder resolutions, there is a huge range in the level of support they receive by shareholders. Widespread criticism of the asset management community has been levelled due to low levels of support, however, there needs to be an understanding that not all resolutions are worthy of support.

 

There have been many in the past couple of years that appeared to be sensible and aligned to progress in an ESG related matter, but in reality the purpose was the opposite. We will follow up with a future soapbox on examples of this from the current voting season.

 

Additionally, critics only point to instances where shareholder support has been low - ignoring the fact that there has been good progress in other areas. For instance, in the UK there has been success in getting companies across the spectrum of industries to set transition plans and disclose targets. In the US, resolutions requiring adoption of proxy access (enabling shareholders to propose alternative board candidates) was widely seen on ballots pre-Covid. These have now largely disappeared; given they were successful the adoption of proxy access is now widely perceived as best practice with the vast majority of companies in the SandP 500 now having such provisions. Similarly, shareholders were successful in encouraging companies to produce EEO-1 reports on enhanced diversity reporting.

 

However, in the US there has been a narrowing of the rules under which shareholder proposals may be excluded from the proxy, with further limitations on certain exclusions also being proposed. Therefore, the number of resolutions expected to make proxy statements this coming season is likely to increase significantly. Notwithstanding this narrowing, no proposal makes it to the proxy statement unless approved by the Securities and Exchange Commission (SEC). Its decision whether to permit a proposal is largely determined by the SECs interpretation as to whether the issue is considered to be ordinary business, perceived to be micro-managing or special business.

 

We are aware of many shareholder proposals currently being filed for this coming proxy season. Wells Fargo attempted (unsuccessfully) to prevent a freedom of association resolution from making the ballot. The proposal will require the company to respect the rights of bank employees to join unions and negotiate for improved conditions. Similar proposals (filed by the US Union Fund) are being submitted at other companies including FirstService Corporation, Tesla, Amazon, Walmart, and Delta Airlines.

 

Other issues coming to the forefront are the push for a living wage and healthy products requests. These seem to be rather more nuanced. A report into living wages was filed at US retailer, Kohl - however, the SEC sided with the company, citing that the request was paramount to micro-management. The SEC took a similar stance at Coca-Cola where the requisition requested that the company adopt a policy that would set a timetable to transition to healthy products. The SEC perceived this to be related to ordinary business operations and blocked the proposal.

 

Whilst we expect a significant increase in proposals this coming season, it should be noted that many are withdrawn (prior to the vote) following ongoing discussions with companies. But the very threat of resolutions being filed can influence behavioral change. At Aegon Asset Management UK, we will continue to analyse each resolution on its own merit and will support those that we believe are worthy as we have done for decades - and we will continue to monitor whether these activities have the desired effect of driving progress where it was needed.

Disclosures

Author

Andrew Woods
Responsible Investment Manager
Andrew Woods is a responsible investment manager responsible for voting and engaging with the companies held within the equity and multi-asset portfolios.
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