Proxy Season: Hot Topics

On November 13, 2024, at the Practicing Law Institute's 56th Annual Institute on Securities Regulation, panelists shared key updates from this year's proxy season and highlighted emerging trends to watch in 2025. Public companies experienced favorable voting outcomes across compensation, activism, shareholder proposals, and director elections in 2024.

Activism and the Impact of the Universal Proxy Card

There was an increase in board-related campaigns, a trend anticipated in the second year of the Universal Proxy Card (UPC). While the UPC has lowered barriers for proxy contests, it appears to favor settlements. Nevertheless, the bar remains high for both activists and companies: activists must make compelling cases for change, while companies must demonstrate that their board composition and strategic plans align with investor expectations.

Shareholder Proposals: Evolving Trends and SEC Oversight

Shareholder proposals increased significantly in 2024, with key trends including a sharp increase in anti-ESG proposals and a growing interest in AI governance topics. There was also a significant increase in no-action requests to the SEC, which granted no-action relief in 68% of cases, up from 56% in 2023. This increase was largely attributable to companies' confidence in their arguments and the overall increase in shareholder proposals.

Anti-ESG Proposals: While anti-ESG proposals surged, they received minimal investor support, with none reaching double-digit approval rates. Companies may find that contesting these proposals is not always cost-effective.
AI Governance: The SEC has rejected attempts to exclude AI-related proposals on the grounds of ordinary business matters, citing that these risks transcend routine business issues. While no AI governance proposals have secured majority support, the SEC's stance signals growing regulatory recognition of AI-related risks.
Environmental and Social (E&S) Proposals: Investor support for E&S proposals continued to decline, as governance-related proposals, such as those addressing board diversity or succession planning, gained traction. Governance proposals are often prioritized by investors for their tangible impact, while E&S topics are harder to settle and less likely to achieve consensus.
Micromanagement Exclusions: The success rate for micromanagement arguments surged to 66%, more than doubling the 31% success rate in 2023. This reflects the SEC's increasing willingness to grant exclusions for proposals deemed overly prescriptive, particularly on environmental and climate-related issues.
Looking Ahead: In 2025, governance-focused proposals aimed at enhancing board diversity and renewal are expected to increase. For example, a panelist from the NYC Comptroller's office noted a plan to focus on "board refreshment," targeting companies with high director tenure, poor performance, and inadequate disclosure of board evaluations.

Say-on-Pay Votes and Executive Compensation Trends

Strong market performance and total shareholder return (TSR) helped drive higher average support for say-on-pay votes in 2024. Median CEO pay also increased, reflecting a broader market trend of rising executive compensation. Companies aligned their pay structures with investor policies, achieving the highest Institutional Shareholder Services (ISS) support rates in five years. As scrutiny over CEO pay intensifies, companies should ensure that compensation narratives clearly link pay to performance to sustain favorable voting outcomes in 2025.

Director Votes and Policy Impacts on Leadership Roles

Director support remained strong as companies adapted to investor policies addressing issues like overboarding and board diversity. However, leadership roles, such as lead independent directors, faced increased scrutiny amid heightened expectations for accountability and governance quality.

Emerging Complexity in Proxy Voting

The rise of pass-through voting has introduced significant complexity and opacity into proxy outcomes. Large institutional investors are increasingly allowing clients to vote directly or follow custom policies, leading to unprecedented vote splits. Additionally, a lack of data on how much voting authority has been outsourced complicates companies' ability to interpret investor intentions. Regulatory pressures, particularly in industries with potential conflicts of interest, are further adding to the challenge.

Looking Ahead to 2025: Expectations in Activism, M&A, and Transparency

Activism is expected to remain strong, driven by new UPC strategies and favorable M&A conditions. Transparency will take center stage as stakeholders demand clarity on proxy voting processes, stewardship programs, and conflict-of-interest management. Companies should prioritize tailored engagement strategies and align governance practices with stakeholder expectations to navigate the increasingly complex proxy environment.

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