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Outreach and responsiveness: what shareholders expect from boards after voting

By Jessica Tasman-Jones

This article is brought to you by Agenda, an FT Specialist publication that focuses on corporate boards

Apple shareholders this month will vote on whether the board of directors should be more responsive. The resolution was filed by Nia Impact Capital, which led a successful vote last year requesting Apple’s board review some of its uses of non-disclosure agreements in employee contracts – but was disappointed with the response from the board.

The latest resolution requires a board member to meet with proponents even if their proposal fails to reach majority backing of all investors, as long as it reaches a majority vote among non-insiders. They would have three months to do so.

This is one sign that expectations are rising when it comes to investor outreach, experts say. As boards prepare for the 2023 proxy season, it’s important that they have a handle on investor expectations around responding to voting results, including support thresholds that trigger a major outreach.

A survey by shareholder engagement consultancy Georgeson, published in November last year, found that most investors have a point at which they expect outreach from companies. Some 60 per cent of respondents said that a 20 per cent vote against management proposals – such as remuneration policies, auditor ratification and director elections – is the threshold at which they would expect to receive engagement from the company.

If they do not feel the response is “adequate”, the research shows investors will vote against management on the same proposal the next year and, if pushed further, will vote against directors.

It is similar for shareholder proposals. If 20 per cent or more vote for this, and it does not pass, investors expect the company to reach out.

“There is a massive uptick of investors expecting to engage, not just with investor relations or general counsel, but with directors to make sure board oversight is incorporating ESG issues and responding to concerns,” says Kiran Vasantham, head of investor engagement for the UK and Europe at Georgeson.

When it comes to executive pay in particular investors expect a high level of responsiveness, Vasantham adds.

BlackRock, for example, states in its 2023 stewardship report that it will examine the board’s responsiveness to previous shareholder voting results when deciding whether to vote in favour of the remuneration report and relevant members of the remuneration committee.

The figures from Georgeson are broadly in line with the UK corporate governance code. If 20 per cent of votes go against the board, the code says the company should explain its next steps when announcing voting results, publish an update statement no more than six months later and provide a summary of what happened in either the annual report or for resolutions at the next meeting.

All votes with more than 20 per cent dissent are tracked via a public register, run by the Investment Association, a trade organisation for UK asset managers.

This means that UK companies are unlikely to face shareholder resolutions like those faced by Apple, says Tom Rose, partner at law firm Macfarlanes. "The balance of power is generally tipped more in favour of shareholders of UK companies (and less in favour of boards) than in the US," Rose says.

However, the request for Apple to respond to shareholders via a board member and within three months would be viewed as rigid even by UK standards, Rose says.

Investor outreach from UK companies is mixed, says Amy Wilson, engagement lead at EOS, the stewardship division of asset manager Federated Hermes.

Some companies "very thoughtfully engage" with their shareholders after dissent and explain what feedback they've had, how they intend to respond and their rationale, Wilson says. Others seem to view it as a box-ticking exercise and shareholders receive boilerplate answers, she adds.

Nearly 90 per cent of UK companies now acknowledge that they have received a high dissenting vote, and 75 per cent provide an update within six months, according to the Investment Association.

Proxy advisors also have detailed engagement expectations in voting recommendation policies. As part of their evaluation of board responsiveness, Glass Lewis, for example, reviews a range of information following an AGM. This can include considering any changes at board level, revisions to governance documents, modifications to remuneration practices or press reports. If it is not satisfied with the board’s response, it will dissent at future meetings, including voting against relevant directors.

“Management proposals should pass very easily without much dissent, and if it does have that much dissent, there is something there to follow up on,” says Doug Chia, president of Soundboard Governance.

For the most part, companies will “go on a listening tour” to see what was behind the dissent. For shareholder proposals, the company will then consider disclosure or whether to comply with the resolution, Chia says.

Companies are advised to provide an update in the proxy on what they did in the off-season to respond to investors after a proposal receives substantial dissent, says Kilian Moote, managing director of ESG advisory at Georgeson.

“Take the off-season to engage that shareholder base to demonstrate outreach, summarise that in the proxy statement and include the percentage of the shareholder base they reached out to,” Moote advises.

Eos accepts that the decision of the board may not align with exactly what it wants, but boards should be listening and responsive to shareholders, says Wilson.

Ultimately, engagement should be ongoing and not simply triggered after certain voting results. “If you haven’t done engagement regularly, it’s valuable to survey [investors] more directly to get an understanding beyond the general stewardship guidelines,” Moote says.

This article is based on a story written by Lindsay Frost for Agenda.

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