Investors Eye Climate Risk, Diversity for Coming Proxy Season

Stay up-to-date with the latest developments in securities law through access to both news and all statutes and regulations. Find relevant corporate filings through a searchable EDGAR database. And...

By Sara Merken

Board diversity and climate change will be prominent themes in shareholder proposals for the 2018 proxy season, corporate attorneys and proponents told Bloomberg BNA.

Both topics were also popular last season, but shareholder proponents are likely to focus on more specific aspects of diversity and climate change for the coming season, they said.

Shareholders, for example, may extend their scrutiny of board diversity to senior management, said securities lawyer Alan Dye, a Washington-based Hogan Lovells partner.

The move by BlackRock Inc., Vanguard Group and other large asset managers last season to declare priority issues, such as climate change, also is a potential game-changer for the 2018 season, said Tim Smith, director of environmental, social and governance shareowner engagement at Boston Trust & Investment Management Co.

These institutional investors are now articulating the same message as some shareholder proponents, which will put additional pressure on the targeted companies, he told Bloomberg BNA.

New York City Comptroller Scott Stringer jump-started the 2018 season by launching the next phase of his “Boardroom Accountability Project.” In September, Stringer’s office sent letters asking 151 public companies to make their boards more diverse, independent, and climate-competent.

The project played a major role in the adoption of proxy access—a process in which shareholders can nominate their own board candidates on the company’s ballot—when it was launched in 2014. Today, about 60 percent of S&P 500 companies have adopted the mechanism, according to EY.

Diversity

This season, companies can expect a variety of proposals on board diversity and equal opportunity reporting, and gender pay gaps.

The Thirty Percent Coalition, an organization that for years has advocated for more diverse boards, is taking a step further by asking companies that already have one woman on their boards to add a second woman.

“One woman is not enough,” said Charlotte Laurent-Ottomane, executive director at the coalition, a national organization whose investor members manage more than $3.2 trillion in assets.

In another twist, investment firm Zevin Asset Management Oct. 7 asked Starbucks Corp. to prepare a report on its new paid-leave policy that took effect Oct. 1. The group said the policy, which offers 18 weeks of paid leave for mothers in the corporate headquarters, is discriminatory because it excludes fathers and adoptive parents, and offers female retail employees only six weeks of paid maternal leave.

Climate Change

Last season, with help from BlackRock Inc. and other institutional investors, climate change proposals received unprecedented majority support at three companies: Exxon Mobil Corp., Occidental Petroleum Corp. and PPL Corp.

Companies can expect shareholders to remain “sharply focused” on climate change proposals after last season’s landmark votes, in addition to the U.S. decision to pull out of the Paris climate accord, said Alexandra Higgins, senior adviser with ISS Corporate Solutions, the governance and compensation consultancy arm of Rockville, Md.-based proxy adviser Institutional Shareholder Services Inc.

There will also be an increase in proposals to disclose methane and other greenhouse gas emissions, said Heidi Welsh, executive director at the Sustainable Investments Institute, a Washington-based nonprofit that seeks to influence corporate behavior on social and environmental issues.

Shareholders may try to dive into more specific issues within the general sustainability and climate change context this season, agreed Ronald Mueller, a Washington-based partner at Gibson, Dunn & Crutcher LLP. It is difficult to predict, though, if the narrower proposals will garner the same amount of support as did those addressing broad climate risk disclosures, he told Bloomberg BNA.

Other Matters

The current polarization in public and political sentiment will carry over into shareholder proposals this season on lobbying and campaign contributions, Mueller added.

Companies that haven’t adopted proxy access, or adopted processes deemed unfavorable by shareholders also are likely to continue seeing proxy access proposals, Dye said.

The rise of virtual-only shareholder meetings, a practice now utilized by 5 percent of S&P 500 companies, “may prove a flash point in 2018,” Higgins said. Shareholders view it an important right to engage with management and the board in person, she said.

Shareholders also have started challenging companies with dual-class stock structures. New York-based institutional investor Nathan Cummings Foundation recently submitted a resolution urging media conglomerate 21st Century Fox Inc. to eliminate its dual-class voting structure. The structure gives executive chairman Rupert Murdoch almost 40 percent voting power, Bloomberg News reported.

To contact the reporter on this story: Sara Merken in Washington at smerken@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Securities & Capital Markets on Bloomberg Law