Learning by proxy

Both investors and companies are maturing in how they view critical issues raised at the corporate ballot box. Even amid a proxy season that included “the priciest shareholder fight ever,” according to The Wall Street Journal, and a headline-grabbing court challenge to a shareholder proposal, Freshfields Partner Pamela Marcogliese said she generally observed more stability and balance in 2024 than in years past.

“You’re not starting from a blank slate in most instances,” said Marcogliese during a June 27 webcast with KPMG BLC Senior Advisor Stephen Brown. “Companies have made a lot of progress. Now, when shareholder proposals come in, they come against a background of a lot of prior work.”

Such prior work not only supports engagement with investors and asset managers but also eases the path of compliance for disclosure of cybersecurity and climate risk. Despite the current stay of the SEC’s climate disclosure rule, Marcogliese suggested that future compliance with applicable global and state climate-related reporting regimes has made the US rule “an afterthought.” “Investors have been pushing for information on [climate] issues for a while,” said Marcogliese. “Prior to the effective date of any of these rules, many companies have been providing voluntary disclosure.”

The past proxy season also featured greater availability of so-called pass-through voting whereby large asset managers give mutual fund investors more say in how their representative shares are voted. “It’s a reflection of where we are in the times and understanding that people have different views,” said Marcogliese. Similarly, the scope of investors and policymakers who are engaging on environmental, social, and governance (ESG) has expanded. “It’s no longer a free pass to support all ESG at all costs,” said Marcogliese.“ There are countercurrents.”

Freshfields Partner Elizabeth Bieber said she has added “anti-ESG” activism to her taxonomy of activist investors, which also includes “vanity activism” that is not principally motivated by financial return; “financial activism,” which relies on an ESG thesis, and “true believer” activism to support sustainable investing.

Increasingly, activists are seeking voting support from other market participants and stakeholders, either by forming coalitions of smaller shareholders or more prominently sharing their proposals through presentations, the press, and social media. “Activists don’t need as much of an investment in companies to achieve their goals,” said Bieber. “Some have said they don’t even need board seats to do exactly what they’d like to do.”

Bieber noted some of the traditional barriers to activism, including having a classified board, or even a controlled board or a controlled company are no longer seen as barriers. “Activists are saying, ‘We can achieve a number of our objectives with support from various stakeholders and a compelling narrative,’” said Bieber. “It has made the landscape a little bit more complicated for every company.”

Going in to the proxy “off-season,” Marcogliese added that directors and companies should not lose momentum gained from the learnings of the 2024 proxy season. “Avoid complacency. Continue to monitor the trends and make sure that your engagement and disclosure optimally position the company and that they are aligned to the company’s said Marcogliese.
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The views and opinions expressed herein are those of the interviewees and do not necessarily represent the views and opinions of KPMG LLP.