Study: Shareholder support down for board nominees

ProxyPulse is a collaboration between Broadridge, a provider of investor communications solutions, and PwC’s Governance Insights Center, a group that supports directors and investors with governance knowledge. ProxyPulse is based, in part, on Broadridge’s processing of “street” shares, which account for more than 80 percent of all shares outstanding of U.S. publicly listed companies. Shareholder voting trends during a proxy season represent a snapshot in time and may not be predictive of full-year results.

This year’s ProxyPulse features voting trends from 4,059 public company annual shareholder meetings held between Jan. 1 and June 30, 2019, including results for this proxy season with five-year trends. According to the report, the number of board nominees failing to receive at least 50 percent support has continued to climb, from 345 in 2015 to 478 in 2019, compared to 416 in the first six months of 2018.

“On average, shareholder support for directors remained high, at 95 percent of the shares voted,” said Chuck Callan, Broadridge senior vice president, regulatory affairs. “However, in comparison to five years ago, there was nearly a 40 percent increase in the number of directors who failed to get a majority of the street shares voted in their favor.”

“Moreover, over 45 percent more directors failed to surpass the 70 percent support threshold, and this will factor into opposition voting next year,” added Callan. “These trends are occurring despite lower numbers of directors standing for election.”

Directors failing to receive at least 70 percent support have also continued to increase, from 1,185 in 2015 to 1,726 in 2019. Among the 478 directors that failed to receive majority support, institutional shareholder support was at 30 percent, while retail shareholder support was at 77 percent. And of the 1,726 directors that received less than 70 percent support, institutional support was at 47 percent and retail support was at 84 percent.

Other key findings

The ProxyPulse report also showed institutions own 70 percent of the shares, while individuals own 30 percent—numbers that remained constant over the prior year period. Voting participation (of the shares each segment owns) was 90 percent for institutions and 28 percent for individuals.

The overall number of proposals that went to a shareholder vote was the lowest in the last five years, down 23 percent to 420 from 549 in 2015. Overall, average support was down as well, from 31 percent of shares voted in favor in 2018 to 29 percent in 2019.

“Proposals receiving strong support included corporate political spending and say-on-pay,” said Paul DeNicola, principal at PwC’s Governance Insights Center. “Areas with diminished shareholder support, compared to prior periods, included the election of directors and social and environmental proposals.”

For corporate political spending proposals, average support has continued to increase each year over the last five years and rose to 31 percent in 2019 from 28 percent in 2018. Support of institutional shareholders (at 32 percent) was 13 percentage points higher than support of retail shareholders in the 2019 proxy season.

Support for say-on-pay was at 88 percent in 2019. During this season, of the 124 companies that had say-on-pay proposals that failed to receive 50 percent support, 33 also had at least one director fail to receive majority support. Also, 36 percent of issuers who failed to achieve 70 percent favorability on say-on-pay also had at least one director who failed to achieve 70 percent favorability (116 out of 322).

The number of environmental and social proposals put to a vote rose slightly from 110 in 2018 to 115 in 2019. However, overall average support declined two percentage points to 25 percent in 2019 from 27 percent in 2018. This was the first such decline over the last five years. “Given that engagement between institutional shareholders and companies has increased, it is likely the decline in average support could be related to discussions outside of the proxy process,” according to the report.