Proxy voting season always has twists and turns, but this year could be one that companies and investors study for years to come.
Entering the year, companies and analysts anticipated the season would be marked by existing trends, including a higher number of social issue- related measures. Instead, what they got was high-profile court opinions, new regulatory guidance with the season already underway and increased public scrutiny on voting, as well as on shareholder advisory firms.
Votes are ongoing, and the Securities and Exchange Commission is still working through a backlog of no-action requests. But there are some emerging trends that could shape what measures end up in future proxy seasons , as well as who, specifically, is casting the votes. So far, both investors and public companies are showing they still broadly support hot- button issues like sustainability and diversity, equity and inclusion measures.
Shifting Priorities at the SEC
It is no surprise that the new administration of President Donald Trump has ushered in new faces and new priorities at the SEC. However, even before leadership confirmation had been completed, then- Acting SEC Chair Mark Uyeda used his time in leadership to quickly change course. In February, a legal bulletin from the SEC’s Division of Corporate Finance rescinded previous guidance from the administration of former President Joe Biden on proxy measures focused on social issues. The change made it harder for activists to demand shareholder votes on sustainability, DEI or other social and climate issues.
By February, proxy season was already underway, but because the change in guidance was immediate, Jennifer Zepralka, a partner in the public companies and corporate governance practice group at law firm Mayer Brown, says some companies took the opportunity to take a second look at the shareholder proposals they had.
“The guidance in SLBB14M gave companies a chance to rethink what they wanted to try to exclude,” she explains. “We have seen more companies opt to send in additional materials in support of a no- action letter request, and some companies may have sought exclusion, rather than just including proposals that were a bit borderline before and hoping they didn’ t pass. We’ re likely going to see these changes play out over the next one to three years before we can get a full picture.”
While t he SEC is still working through those no-action requests, sources say the resulting no-action letters are likely to be studied closely, by both companies and investor groups, to divine what the commissioners are thinking. Many companies thought the Trump administration was going to come in and be markedly more pro-business, but the results to date have been mixed at best. Zepralka adds that while there is significant focus on sustainability and DEI, these are not the only measures that can be excluded.
“We’ re seeing more activity in general around the ordinary business exclusion,” Zepralka says. “I think companies thought it was going to be easier to get measures excluded, but the SEC has been pretty measured about what it is willing to exclude so far.”
Companies, Investor Groups Stay the Course
Even though the SEC has amended its guidance, it is not at all clear that companies or investor groups are willing to fully abandon issues like sustainability or DEI. According to 2024 proxy voting data from proxy solicitor Georgeson LLC, support for anti- ESG-focused proposals is in the low single digits, while support for pro-ESG measures ranges from 20 % to 35%, depending on the specific issue.
Many companies and investor groups have stewardship goals and hiring programs in place, and the decision to end or significantly limit those programs is unlikely to happen at scale in a single proxy season. Historical proxy voting data also show that a single-year decline in a certain type of proposal often means that votes focused on that same issue happen at a higher rate the following year.
So far, data collected by Georgeson through May suggest that broad support for sustainability and DEI remains among investors and companies. So far, there have been 140 shareholder proposals focused on governance issues; 120 focused on social issues; 54 focused on environmental issues; and 55 on anti-ESG issues. There were 13 explicitly anti-DEI proposals over the same period.
“We are seeing an increase in the number of anti-ESG, anti-DEI proposals,” says Kilian Moote, Georgeson’s head of ESG advisory. “However, we are not seeing an increase in investor support for those proposals when they get voted on. What we are also seeing, anecdotally, is that [companies] are more willing to engage with proponents of these measures and negotiate them away or negotiate a withdrawal.”
That tracks with the findings of Impactivize, which is monitoring anti-DEI proposals and the resulting votes, this season. So far, 26 companies have anti-DEI measures up for a vote. Some companies have multiple measures, and some measures have yet to be decided, but 23 measures have either been withdrawn or did not pass, while none have passed.
Curves Ahead
While current proxy-voting data are tracking with established trends, when it comes to votes on social issues, many forces continue pushing for change .
In January, the U.S. District Court for the Northern District of Texas ruled that American Airlines and the company’s employee benefits committee had breached their fiduciary duty of loyalty by hiring and retaining BlackRock and allowing the asset manager to engage in non-binding votes on shareholder measures that were in line with the ESG goals of its funds and American Airlines. The ruling in this case, along with the change in guidance from the SEC, focused on issues of materiality and whether or not ESG factors are, in fact, material to company performance. Taken together, the opinion and the guidance suggest a more skeptical stance on the part of judges and regulators that such factors are material concerns.
This shift could also embolden certain parties and make proxy votes more litigious overall, sources say. If that happens, it raises questions about the role of proxy voting going forward.
Chester Spatt, a professor of finance at the Tepper School of Business at Carnegie Mellon University and a former chief economist at the SEC, says proxy votes fulfill an important function.
“While there might be some awkwardness or even a fight around a given vote, the mechanism is still an important one,” Spatt says. “Investors need a way to push back against management from time to time. It’s not healthy to have a company that is just a perpetuation of management— they aren’t the only stakeholder. ”
Still, some of the largest asset managers, including BlackRock and Vanguard, are working on efforts to have individual investors cast proxy votes across a broader number of share classes. Vanguard last week announced plans to triple, to 10 million, the number of investors in its Investor Choice program that are eligible to direct proxy voting in certain funds they own. According to the firm, the expansion would mean the program would apply to nearly $1 trillion of the $10.1 trillion in the firm’s total assets under management.
“I think we’ re going to see more asset managers move to pass through voting to a bigger group of beneficiaries,” Zepralka says. “But there are some challenges there— they still have to work through implementation, and it is notoriously hard to get retail investors to engage on proxy issues. So it might be a way for asset managers to deal with a bit of the litigation risk, but it ’s too early to tell what it will ultimately look like in practice.”
Pro-business interest organizations like the U.S. Chamber of Commerce are also using the change in administration to push for greater scrutiny on shareholder advisory firms. Because shareholder advisory firms typically engage with institutional investors, their role i s unclear if a higher rate of individual investors engages in voting . In a recent letter, the chamber pushed for a closer examination of these firms’ role and potential limitations on the kind of advice they are allowed to give shareholders. A group of Republican senators is also probing ISS and Glass Lewis about their role advising shareholders. The group sent a letter to both firms on May 20 outlining concerns. JP Morgan Chase CEO Jamie Dimon also called shareholder advisory firms a “cancer” at a recent event and advocated for their elimination. Proxy adviser Institutional Shareholder Services is part of ISS STOXX, which also owns CIO.
If it becomes harder to address certain issues through a proxy vote, institutional investors may put more emphasis on their engagement strategies with company management teams.
“By the time you get to a proxy vote, you’ re really at the last part of an engagement strategy,” Moote says. “By that point, most institutional investors have engaged with management. They know where the board stands. They know, more or less, what a company is already doing. So I think even if proxy voting becomes more litigious, we’ re still going to see a broader engagement strategy on the part of investors. The proxy vote is one tool of many.”
Tags: Chester Spatt, diversity equity inclusion, ESG, Georgeson LLC, Impactivize, investor activism, Jamie Dimon, Jennifer Zepralka, Kilian Moote, Mayer Brown, proxy voting, US Securities and Exchange Commission
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