Georgeson Finds More Companies Negotiate Environmental and Social Proposals Before Going to Shareholder Vote
When it comes to environmental and social proposals, more companies have decided a public showdown with shareholders isn’t worth the fight.
Some 400 environmental and social proposals were submitted to companies in the S&P 1500 in 2018, according to Georgeson’s Annual Corporate Governance Review. Of those, only 150 wound up going to a shareholder vote, down from 212 in 2017.
One big reason for the smaller number of proposals going to vote: Companies elected to handle the issues through a direct negotiation known as a “private ordering” process where matters are handled behind the scenes. In the case of environmental and social proposals, many companies have voluntarily drafted reports with new disclosure surrounding issues like sustainability.
“It’s better to be somewhat in control than be told what to do,” Don Cassidy, EVP of Business Development and Corporate Strategy at Georgeson told CorpGov in an interview. “Generally, people involved are less contentious sorts than activists, but you wouldn’t go so far as to say it’s totally friendly.”
There were several victories for those submitting environmental and social proposals in 2017 – particularly among oil and gas companies. Two such proposals that were opposed by boards of directors but ultimately passed were for Pioneer Natural Resources and Occidental Petroleum.
In Pioneer’s case, a shareholder proposal at the 2017 meeting requested “a sustainability report describing the company’s short- and long-term responses” to environmental, social, and governance-related (ESG) issues. For its part, the board of directors said the company was already committed to ESG matters and that the preparation of a report would cause increased costs that would outweigh any benefits. But the proposal got the necessary votes, prompting Pioneer to publish a 50-page report.
Similarly, a proposal at Occidental Petroleum in 2017 requested a report detailing the company’s approach to climate change. The proposal said that the requested report “will demonstrate to shareholders that Occidental is strategically planning to remain competitive in a carbon-constrained future and generate continued value for shareholders.” Similar to Pioneer, Occidental recommended shareholders vote against the proposal, citing its existing disclosures as sufficient. The Occidental proposal passed handily and the company published a report.
It’s likely that many companies have had discussions with shareholders about environmental and social matters for years before they decided – or were forced – to publish reports. “Behind the scenes, these conversations are held over a long period of time,” said Lyndon Park, Managing Director and head of the Governance Advisory Solutions practice at ICR. “Companies don’t like to be first movers on this kind of stuff.”
Of course, it’s not purely a matter of being spooked into action by shareholder votes. Many large investors such as index funds have professionals dedicated to governance matters. And some pensions who manage money for socially-conscious beneficiaries are very vocal about ESG concerns.
In turn, some companies have taken steps to monitor ESG-related issues on a regular basis and engage with shareholders. “No longer do you have people wearing one or two or three hats,” he said. “Companies now have a separate group that does governance or a sustainability office.”
Don Cassidy, EVP of Business Development and Corporate Strategy at Georgeson
The companies most likely to pay attention to environmental issues are those that actually have potential financial exposure. Just consider Exxon Mobil and BP, which famously experienced catastrophic accidents in Alaska and the Gulf of Mexico, respectively, that were both public embarrassments and expensive cleanup jobs.
Georgeson’s report also sheds light on some proposals that are extremely tough to pass. For instance, there were 46 proposals that went to vote on a decision to separate the role of CEO and Chairman. But the support for those proposals was only around 30% and none actually passed.
John Jannarone, Editor-in-Chief