Proxy Season Gets Political

Proxy Season Gets Political

You’d think, at some point, we’d get tired of talking about politics. But it’s the year 2018, when it seems that every single activity – from choosing a dining room set to watching The Crown to visiting the local gentlemen’s club – suddenly feels like a political act. This proxy season, public companies should not expect any relief from this state of affairs. Quite the opposite. In fact, according to Institutional Shareholders Services, Inc.(ISS), of 450 shareholder proposals made to Russell 3000 companies, 313 of them (nearly 70 percent) deal with environmental or social issues.

Of that subset, questions about the environment and corporate political spending dominate this year’s hot-button proposals, accounting for five of the top six proposals. As they did last year, environmental proposals make up a significant portion of all “ESG” proposals, with 112 proposals dedicated to environmental issues by ISS’s count. Many of those are climate change proposals (70), with sustainability-related issues (20) also featuring prominently. Other environmental proposals this season include, for instance, a request with McDonald’s for an antibiotic-free meat supply chain. A related proposal with chicken producer Sanderson Farms seeking a resolution to phase-out antibiotics in animal feed failed with 43 percent of the vote this year, but marked improvement over its 31 percent support last year.

There are 74 proposals dealing with corporate political activity this year, and those involving political contributions (37) and lobbying disclosures (36) are the two most popular categories among all shareholder proposals. ISS categorizes these under the broad “social” umbrella, which included a whopping 201 proposals overall. One extremely popular subcategory of “social” proposals are those relating to board and workplace diversity. As the non-profit group As You Sow puts it, some three dozen proposals are aimed at creating boards of directors that are less “pale, male, and stale.” Another three dozen proposals deal with gender pay equity and target the financial services industry in particular.

The social proposals, of course, deal with a wide range of issues, from the “discriminatory impact of small airplane seats on overweight passengers” to an upcoming Starbucks vote on the lack of leave for fathers, adoptive and LGBTQ parents. In terms of new proposals, the most interesting may be 21 proposals filed by Investors for Opioid Accountability, asking opioid manufacturers and distributors to comment on opioid-related business risks.

ISS offers a couple of reasons for the trend toward hot-button shareholder proposals. It suggests that the prominence of social and environmental issues in “public discussion,” as well as asset managers’ own move “toward greater ESG integration” have helped make them the subject of so many proposals. We agree with those theories, but would add two factors of our own. First, there are the surprising results from last year, when climate-change-related proposals received majority support at ExxonMobil, Occidental Petroleum and PPL Corp. For activist investors, that may have been the taste of proverbial blood they need to ramp up their energy this year, bolstered by the knowledge that they had the support of BlackRock, Vanguard and other large stockholders. Second, these politically oriented proposals could be filling a vacuum left by elected officials. As Congress and the president back away from gun control in the wake of the Parkland shooting, for instance, BlackRock’s stance feels even more significant. In other areas, too, society (or at least influential investors) may be looking for corporations to lead on issues instead of waiting for Washington, DC. That’s certainly the take of As You Sow CEO Andrew Behar, who offers a particular spin on the issue: “As government protections for our environment have been systematically eliminated and the social safety net shredded, we are seeing new and established investor coalitions step into the breach and raise the stakes for companies and their boards to grapple with these material issues that affect all of our futures.”

Regardless, it seems clear that for at least this proxy season, shareholder meetings are yet another political event on our calendars.

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