An Intelligize analysis of 2019 shareholder proposals related to environmental, social and governance (ESG) topics provides insights for public companies that will face similar investor pressures going forward. The analysis, part of the company’s 2020 Playbook on ESG Shareholder Proposals released today, highlights increasing challenges of proxy season – the result of new uncertainty over the no-action letter process to exclude proposals, potential regulatory changes and an ever-increasing social consciousness, among other factors.
Intelligize identified proposal categories that garnered outsized results and analyzed the possible reasons behind them. The resulting playbook analyzed nine 2019 ESG proposals that received strong shareholder support in the areas of sustainable packaging (Kroger, Starbucks and YUM! Brands), political spending (Alliant, Cognizant and Macy’s), and compensation clawbacks related to the opioid crisis (Johnson & Johnson, Mallinckrodt and Mylan).
“The answers we uncovered varied by proposal category, but the trends within each are clear,” said Rob Peters, a director at Intelligize and one of the report’s co-authors. “For example, in the environmental category, shareholder activists have a view of corporate sustainability that often varies dramatically from the perspective of the company itself. We also note that when it comes to political spending, companies that actively and forcefully explain their resistance to a proposal are generally more successful. And the opioid-related proposals illustrate a continued blurring of the lines between social and governance issues.”
In 2010, proponents of shareholder proposals submitted a total of 29 non-management solicitations, in which they articulated the case for their proposals to all shareholders. In one indication of how sophisticated and pervasive shareholder proposal campaigns have grown, proponents have already submitted 185 by Q3 2019.
Environmental: sustainable packaging
- Companies can expect targeted rhetoric that resonates with an increasingly environmentally conscious shareholder base. In the proposals and responses of all three examples the companies tout the “impressive” efforts they have made in the area of sustainability, while the proponents hit back with the relatively small overall impact that these efforts are having.
- Proponents have a sales job of their own to do if they desire strong proposal support. Case in point, the Starbucks proposal, which included aggressive proponent arguments, garnered nearly double the shareholder support of other 2019 sustainability proposals that used only generic language to state their cases.
Social: political spending
- The “S” in ESG has gone mainstream. Social proposals are becoming more prevalent and successful. Two proposals to Macy’s on political spending in the 1990s earned 3% and 4% of the vote. A similar 2019 proposal won 53% approval.
- Companies should consider whether they are already satisfying the intent of the proposal or would be open to doing so. In either case, they could request a no-action letter from the SEC under Rule 14a-8(i)(10), which provides that a shareholder proposal may be omitted if the company has already substantially implemented it.
Governance: opioid-related compensation clawbacks
- Companies can’t afford to take their time assessing strategies for fending off hot-button shareholder proposals. At its very first showing, 46% of J&J shareholders supported a proposal requesting disclosure of opioid-related compensation clawbacks. A similar tally in the Mallinckrodt proposal showed 53% support upon its debut. So, it’s clear that proposals like these already have a critical mass of support, regardless of how new they might be.
- When facing an uphill PR battle, wildfire support is pushing companies to negotiate and settle rather than defend against proponents.
EDITOR’S NOTE: The full Playbook is available for download here. The tables contained in the report may be reprinted by any media outlet with credit given to Intelligize as the source.
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