At the Harvard Law School Forum on Corporate Governance and Financial Regulation, Institutional Shareholder Services Executive Director Subodh Mishra recently published a summary of an ISS analysis of 450 proposals filed at Russell 3000 companies, which shows how investors’ priorities are shifting toward social, political, and environmental concerns. More than two thirds of these proposals are related to social or environmental issues, chief among them political activity and spending, board and workplace diversity, and climate change and sustainability, Mishra writes. Furthermore, nine of the ten most common types of proposals related to one of these issues, whereas only one (demanding the right to call a special shareholder meeting) is focused on governance. Mishra sees two main factors driving this trend:
First, social and environmental issues themselves are gaining significant traction with investors and the public. Important issues, such as concerns about the transparency of the political process, harassment and equity in the workplace, and climate change risks make headlines and dominate the public discussion daily. At the same time, investors and asset owners are bolstering their efforts towards greater ESG integration, which helps proponents gain further momentum. Second, governance topics may be lower on the agenda for the target universe. Shareholder proposals are typically filed at large-capitalization companies, where many formerly-contested governance issues have now become the standard. Annual director elections, majority vote standard, simple majority vote requirements and even proxy access—to a large extent—are now the norm for the vast majority of large companies.
ISS’s analysis counts proposals related to diversity and inclusion toward its total of “social issue” resolutions; while that’s fair, investors are paying more attention to diversity not only out of a sense of social responsibility but also as part of the investor community’s growing concern with talent as a key driver of business value.
CEB, now Gartner, investigated this trend last year in our Investor Talent Monitor (which CEB Corporate Leadership Council members can read in full here), finding that among the 900 largest companies in US equity markets, the percentage of organizations talking about talent on investor calls increased from 55 percent to 70 percent from 2010 to 2016. D&I is just one of many talent issues coming up more frequently on these calls, of which culture and recruiting were the most common. Institutional investors are paying more attention to culture and change management as they recognize how important it is for their portfolio companies to have the right culture and talent strategy in place to respond to a business environment of constant change.
The ISS analysis also looks at the top proposal filers, which include well-known activist investors like John Chevedden, Trillium Asset Management, Zevin Asset Management, and Arjuna Capital, the activist arm of investment firm Baldwin Brothers Inc. Gender equality-focused Arjuna’s most recent victories include pressuring some of the largest US banks into releasing pay equity audits and abandoning salary history inquiries in pay negotiations with candidates. Zevin, meanwhile, has been a driving force behind investor pressure on companies like Starbucks to improve their parental leave policies, particularly for hourly employees.