"As competition to demonstrate superior investment stewardship continues to grow, investors have become more proactive and assertive than ever," according to PJT Camberview's recent 2019 proxy season summary. The update highlighted the fact that increased focus on limiting overboarding for directors is just one example of the ways in which investors can "follow" directors across their board service, rather than limiting tracking to a director's performance at a specific company. Other highlights of the survey included:
- Investors Diverging From Proxy Advisors. Despite a year-over-year decrease in negative proxy advisor recommendations, ISS reported that "significant opposition to directors of Russell 3000 companies this year increased to its highest level since 2011." Stricter overboarding policies put into place by major investors contributed to the trend. In the same vein, investors have stepped up their own quantitative screens of pay for performance alignment and incentive plan design and may vote against a company say on pay vote despite a positive ISS recommendation due to differences in focus and methodology. This may complicate matters for companies where, for example, two major institutional investors disagree on executive pay. The focus this year for investors has been on the pay for performance gap, with the analysis noting that proprietary investor pay for performance analysis "can prompt an engagement request to understand the underlying causes.
- Increased Focus on ESG. Environmental and social shareholder proposals surpassed governance proposals for the third year in a row, with nearly half of those that went to a vote receiving above 30% support. In addition, investors have been evolving in their use of proprietary screens and rating frameworks (such as State Street's R-Factor system) and creating collective action on issues like climate change through targeted campaigns and coalitions.
- Drop-off in Activism Contests. Companies were more likely to reach a settlement with activist investors before a proxy vote this year, with the total number of public activist demands also declining. However, as we have seen with the expanded Arjuna Capital campaign on pay equity this year, activist approaches continue to evolve and rarely stick to the status quo. In addition, the summary notes that the emergence of "activated employees" who co-sponsor shareholder proposals, conduct sophisticated media campaigns and stage walkouts, all without the aid of organized labor unions, is a major new development impacting company policy and practice.
- Evolving Approach to Engagement. Finally, CamberView states that faced with overwhelming numbers of proxies and high demand for engagement, "some major asset managers" have begun initiating their own engagement with companies with the agenda and key focus areas identified beforehand, in an effort to streamline and target engagement where it is most needed. This continues a trend we have seen over the past few years of investors preferring engagement in the off-season unless there is a major issue that needs to be discussed.