2024 PROXY SEASON REVIEW

The 2024 proxy season in the United States marked a significant period of corporate governance and shareholder engagement, reflecting evolving expectations, regulatory developments, and emerging issues. Despite the economic and political complexities, companies generally secured strong support on key voting items. However, the season also introduced new challenges and highlighted the increasing importance of topics such as artificial intelligence (#AI) governance, board composition, and environmental, social, and governance (#ESG) considerations.

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1. Proxy Season Review for 2024

The 2024 proxy season was characterized by a strong level of support for key corporate proposals, despite the increasing complexity of the economic and political landscape. The season witnessed an uptick in shareholder activism, with a significant focus on AI governance and a re-calibrated approach to shareholder proposals. Notably, companies continued to navigate the complexities of the new Universal Proxy Card (UPC) rule, which prompted novel responses in proxy contests. As shareholder expectations evolve, companies are increasingly required to address emerging governance issues, especially those related to technology and AI ethics.

2. Key Takeaways for Board Directors

Directors need to be aware of several critical trends that emerged during the 2024 proxy season:

• Investor Support and Activism: There was a high level of investor support for directors, with 96.3% support, up from 95.8% in 2023. However, there was also a notable increase in shareholder activism, partly due to the new universal proxy card (UPC) rule, which facilitated more proxy contests.
• ESG and Governance Proposals: While ESG proposals continued to dominate the shareholder landscape, governance-related proposals saw a resurgence in support. Proposals to eliminate super-majority voting provisions (which received an average of 72% support) and establish independent board chairs gained traction, reflecting investor demand for more transparent and accountable governance practices.
• AI and Technology Risks: The season also highlighted the growing focus on AI governance. Investors submitted a record number of AI-related proposals, reflecting concerns over the ethical implications and risk management associated with AI technologies. Although none of these proposals passed, the trend indicates that AI will continue to be a critical area for board oversight.
• Say-on-Pay and Compensation: Investor support for say-on-pay proposals increased, with average support rising to 90% for S&P 500 companies, indicating continued confidence in executive compensation practices. However, there was an increase in scrutiny over pay versus performance alignment, with some proposals challenging the adequacy of performance metrics and the transparency of executive compensation disclosures.

3. Shareholder Proposal Trends in 2024

The 2024 proxy season saw a record number of shareholder proposals, surpassing previous years. The five most popular proposal topics were climate change, nondiscrimination and diversity-related issues, simple majority vote, director resignation bylaws, and independent chair proposals. These topics accounted for 34% of all shareholder proposal submissions.

1.?????? Climate Change: Proposals related to climate change continued to be a dominant theme, with investors increasingly demanding greater transparency and action on environmental impacts. However, support for these proposals has seen a decline as companies have enhanced their disclosures and reporting.

2.?????? Nondiscrimination and Diversity-Related Proposals: These proposals focused on enhancing diversity at the board and management levels, with a particular emphasis on racial and gender equality. Although these proposals gained attention, they often faced resistance, particularly in sectors where diversity initiatives are still evolving.

3.?????? Simple Majority Vote: Proposals advocating for the replacement of super-majority voting requirements with simple majority votes gained significant traction, with many securing majority support. This shift reflects investor demand for more democratic and accessible governance structures.

4.?????? Director Resignation Bylaws: There was a notable push for bylaws requiring directors who fail to receive majority support to tender their resignation, underscoring the growing emphasis on director accountability and board effectiveness.

5.?????? Independent Chair: Proposals seeking the appointment of an independent board chair highlighted ongoing concerns about board leadership and governance independence. Although support varied widely, these proposals continue to be a focal point for governance reform advocates.

6.?????? ESG and Anti-ESG Proposals: While the number of ESG-related proposals continued to grow, there was also a rise in "anti-ESG" proposals. Despite their increased volume, these anti-ESG proposals received low average support, indicating they may be more about gaining attention than actual shareholder backing - “Growing complexity and polarization”.

7.?????? Regulatory and Political Complexities: Shareholder proposals highlighted significant ESG issues, such as climate change and corporate political influence. This reflects the ongoing challenges companies face in navigating regulatory and political complexities.

?A Future-Ready Roadmap        

As companies prepare for the next proxy season, boards must anticipate continued pressure on governance and ESG-related issues, particularly those involving AI and emerging technologies. Enhanced disclosure practices, robust engagement strategies, and proactive governance reforms will be essential to meet evolving investor expectations. The board’s ability to navigate these complex issues with agility and foresight will be critical to sustaining shareholder trust and corporate resilience in the years ahead.

To prepare for future proxy seasons, companies should consider the following strategies:

1. Enhance Disclosure: Companies should increase transparency around technology risks, particularly cybersecurity and AI governance, to mitigate shareholder opposition.
2. Adapt to UPC Rules: With the new UPC rule, companies should develop strategies to manage potential proxy contests and consider the implications for board composition and effectiveness.
3. Focus on ESG Engagement: As ESG issues remain a focal point, companies should engage in more nuanced dialogues with stakeholders, balancing regulatory requirements with investor expectations.
4. Board Diversity and Skills: Companies should continue to disclose board diversity and skills matrices to provide insights into board effectiveness and align with investor expectations.
5. Establish clear AI governance and risk management frameworks: Develop board-level oversight mechanisms to manage AI-related risks and ethical considerations. Communicate transparently about AI governance practices.
6. Align executive compensation with long-term value and ESG performance: Link executive pay to long-term financial and ESG outcomes. Communicate clearly with shareholders about compensation practices.
7. Anticipate and proactively manage shareholder activism: Develop a comprehensive plan for managing activist campaigns and engage constructively with shareholders.

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By addressing these areas, companies can better navigate the evolving landscape of corporate governance and shareholder engagement, ensuring they are well-prepared for the challenges and opportunities of future proxy seasons.

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Note: This report provides a general overview of the 2024 proxy season trends and future-ready roadmap. It is intended for informational purposes only and does not constitute legal or financial advice. The specific circumstances and needs of each company may vary. It is recommended that companies consult with their legal and financial advisors for further guidance.

You can reach out to me "Bo" Subodh Dalvi for strategic executive advisory services on corporate board business governance matters.

References:

• Trends and Updates from the 2024 Proxy Season: Harvard Law School Forum: https://corpgov.law.harvard.edu/2024/07/06/trends-and-updates-from-the-2024-proxy-season/
• https://www.debevoise.com/insights/publications/2024/08/2024-proxy-season-in-review
• https://www.sullcrom.com/insights/2024/August/2024-Proxy-Season-Review
• From Jamie Carroll Smith , 安永 Americas Center for Board Matters Investor Outreach and Corporate Governance Director –

-????????? https://corpgov.law.harvard.edu/2024/07/30/2024-proxy-season-review-five-takeaways/

-????????? https://www.ey.com/en_us/board-matters/proxy-season-review

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?ADDITIONAL INFORMATION RESOURCE:

"The 2024 Proxy Season Review" by Diligent Market Intelligence , Diligent Boards & Governance The report contains both qualitative and quantitative analysis of activism. https://www.diligent.com/resources/research/PSR2024