2024 Proxy Season: Key themes

With the peak of the 2024 proxy season soon approaching, Simona Rubino from GAM’s Governance & Responsible Investing (GRI) team shares her views on six themes that she sees as priorities for this year and are likely to shape the shareholder meetings agenda.

08 April 2024

Board composition

We expect boards comprising high-skilled individuals with relevant expertise and background, as well as a strong core of independent directors, to ensure that all stakeholder interests are protected, to exercise objective judgement and, if necessary, to act as agents for change.

Key developments

• As companies’ operations are increasingly challenged by economic, geopolitical, sustainability and cybersecurity risks, we expect the Board to strengthen their competencies to manage the company’s exposure and navigate associated risks and opportunities.
• The financial and sustainability impact of these risks remains a high focus for regulators and investors, and will likely continue to shape the topic of shareholder resolutions we see at the 2024 annual general meetings (AGMs), particularly in regard to climate, social and artificial intelligence (AI) concerns.

Our view

• To support independent thought, we expect board tenure to not exceed nine years.
• For 2024 we have strengthened our expectations on board and committees’ independence for large-cap companies across markets. While we will factor ownership structure analysis and continue to follow a case-by-case approach, we believe that Boards at companies listed in a primary index should aspire to two thirds independence. We are taking a stronger stance on Japan at these AGMs by voting against the Chair of the Board if independence levels at companies listed on the prime market segment are below 50%.
• In assessing shareholder resolutions on environmental and social (E&S) and cybersecurity themes, we will closely look at board performance, governance, the strategy in place and how it is implemented. Discussion on the exposure to these risks and the action taken to mitigate them will be a key area of focus for our assessment. We will hold directors accountable where we believe there is poor oversight or strategy to mitigate these risks.

Climate transition plans

The increasing awareness of the impact of climate change on the environment and societies is changing the investment landscape. Transitioning to net zero is one of the greatest disruptions to the economy since the industrial revolution, which poses several significant risks as well as opportunities.

Key developments

• In 2021, we joined the Net Zero Asset Managers (NZAM) initiative, committing to work in collaboration with our clients to reach net zero greenhouse gas emissions by 2050 or sooner to limit warming to 1.5°C.
• In 2024, we expect to see continued scrutiny on companies’ progress on their net zero targets and intend to continue to use voting, alongside effective and targeted engagement, to strive towards our own net zero goals, including greater detail on Climate Transition Plans. Increasingly we expect these plans to be put to shareholder vote, so-call ‘say on climate’.

Our view

• Our voting principles set expectations for appropriate disclosure and management of climate-related risks. We will also support shareholder resolutions where we consider these are proportionate and additive.
• In 2023, we supported 41% of climate-related shareholder resolutions (total of 44 resolutions) compared to 55% of 38 resolutions in 2022. We also voted in support of all five management resolutions compared to 62% of 13 resolutions in 2022.
• While the pressure mounted for those companies looking to reduce Scope 3 emission [all indirect emissions that occur in the value chain of a reporting company] targets, we preferred to strengthen our dialogue with our investee companies to support their target setting process and progress against their transition plan, rather than expressing our concerns by supporting shareholder resolutions focused on this topic.

Diversity

We believe that diverse and inclusive boards lead to better decision-making and an important step in developing diverse talent throughout the business.

Key developments

• As more stringent rules on diversity will be coming into force in upcoming years across markets, including the US, UK and Switzerland, board gender and ethnic diversity will likely continue to be a dominant theme for the 2024 proxy season. The heightened pressure on boards to meet gender, racial and ethnic diversity expectations may drive new board appointments and more detailed reporting.
• The wave of shareholder resolutions on Diversity Equity and Inclusion (DEI) in the past years has also shed more light on companies' efforts across the entire organisation. We expect companies will continue to be scrutinised on DEI, racial equity and human resource management reporting.

Our view

• We have heightened our expectations on gender diversity in our voting principles to 40% of the board, and while we will maintain a case-by-case approach, we will scrutinise companies’ progress and strategies on diversity on the board, among senior leadership teams and within the entire workforce.
• Gender diversity is also one of our main priorities for Asian markets, given that the presence of all-male boards is still significant. We noted some progress, including through our efforts in 2023 to promote the increase of female representation at our investees through engagement and collaborative initiatives. We continue to consider opposing the re-election of the chair of the Nomination Committee if the board is not at least 25% gender diverse.

Nature

While the focus on nature loss is still at an early stage, there is a growing awareness among regulators, investors and companies that mitigating these risks is an essential component of the net-zero path, as well as the significant dependency of the economy on nature-related services and resources.

Key developments

• The recent introduction of the Taskforce on Nature-related Financial Disclosures (TNFD) as a framework for the reporting and assessment of nature-related risks will likely enhance stakeholder attention on these matters.
• The nature-related themes are also a marginal portion of resolutions we have been voting on within our holdings in the past few years. In 2022 and 2023 we have voted on shareholder resolutions requesting companies to report on deforestation, water and plastic. Notably, most of these resolutions received above 20% shareholder support.

Our view

• For the 2024 AGM season, we do not expect to see significant changes to these trends, however we encourage companies to enhance their disclosure on the impact of their business, risks and opportunity in respect of nature-related issues.

Remuneration

Remuneration is an important consideration in attracting and retaining key employees. We expect that remuneration arrangements should aim to incentivise appropriate long-term behaviour from management and discourage excessive risk taking.

Key developments

• Similarly to 2023, the impact of macroeconomic variables on stakeholders, such as inflation and cost of living, continues to be one of the key considerations in assessing the appropriateness of executives’ pay packages at this year’s proxy season. Given the economic pressure on consumers, companies are encouraged to design pay packages and define outcomes by including consumers' needs and spending remuneration decisions.
• The challenges for UK and European companies in recruiting or retaining high-skilled executives and the debate on pay gaps with the US CEOs will likely be reflected in increases in pay quantum, retention awards and transition to hybrid incentive plans.
• The 2024 proxy season will mark the first year of compliance for the majority of US companies of the Securities and Exchange Commission (SEC) disclosure requirements on the link of executive compensation and company performance for a five-year period.
• The new provisions in the US and UK on clawback policy are another highlight of this proxy voting season which will likely be reflected in updates to executive contracts. US companies are required to comply with SEC rules from December 2023 by establishing a written policy for the recovery of remuneration awards erroneously received by executives (current or former) in the event of an accounting restatement or correction to previous financial statements. The revised version of the UK Code, which will be in effect from 2025, also requires that malus and clawback are provided under legally binding contract and reinforce the reporting requirements.

Our view

• The assessment of remuneration practices in our investee companies is generally on a case-by-case basis as these will vary significantly depending on market practices, the industry in which they operate and our understanding of their operations. For any increase grounded on competitiveness with the US market, we will scrutinise the remuneration committee determination process and rationale provided.
• As the inflation and cost of living remained high in 2023, we will look how remuneration committees have factored workforce treatment into their decisions on remuneration outcomes. Generally, we will not support executive salary increases for inflationary reasons which we deemed excessive compared to those granted to the wider workforce and we will consider opposing remuneration resolutions when the determination of pay outcomes is not reflective of the wider stakeholder experience.
• For 2024 we have strengthened our approach on pay for performance alignment and we will reject, for example, pay proposals when the relation of pay quantum, absolute and relative company performance is not satisfactory.
• As the management of E&S risks is a substantial feature of companies’ business strategy, it is now common practice to incorporate E&S performance goals into remuneration frameworks. Starting from the 2024 proxy season, we will monitor the use of these E&S metrics, with the expectation that the pay structure at companies operating in sectors highly exposed to environmental, climate and social risks is designed to incorporate performance KPIs material for the business and aligned with the E&S strategy. We will monitor disclosure on target setting and outcomes for these pay components. We will look at how stretching these targets are, as well as the balance of financial and non-financial pay-outs.
• In line with our voting policy, we may consider voting against remuneration resolutions when variable pay of executive directors is not subject to recoupment provisions. We also encourage companies to consider in their policy recoupments for misconduct, reputational damage and risk management failure that could materially impact the company’s business and stakeholders.

Vote on Non-Financial Reporting

A new set of reporting obligations are now in force in Switzerland. The revision of the regulatory framework places Switzerland in closer alignment with the European regulations, and more specifically the Corporate Sustainability Reporting Directive (CSRD), which replaced the Non-financial Reporting Directive (NFRD).

Key developments

• Under the revised version of Swiss Code of Obligations (CO), large Swiss companies, banks and insurance companies will be submitting to shareholder vote their non-financial report for the first time at the 2024 AGM. With the purpose of providing an overview of the development, performance and the impact of business activities on E&S matters for stakeholders, the reporting should cover environmental, social and labour matters together with human rights and anti-corruption matters. As the law does not provide any specification on the vote or external assurance, Swiss boards can seek either an advisory or a binding vote on this resolution and voluntarily obtain external assurance of the information provided.
• In Europe, shareholders have been voting on the non-financial reporting resolutions at large Spanish companies since 2019. Following the transposition of the NFRD into Spanish law, companies are required to provide information in line with the European Commission guidance and with the standards of the Global Reporting Initiative, and submit the reporting to a binding shareholder vote. The report must be subject to external assurance of the independent auditor.

Our view

We would normally support these resolutions absent any issue with the level and timing of disclosure provided, or any material concerns on E&S matters.

You can read our latest Sustainability Report here.