Active ownership: social issues in the 2023 voting season

Voting on shareholder resolutions is a core pillar of our engagement strategy, as it can provide us with a forum to use our voice to express our positions on key issues to companies’ management teams.

From January to May of this year, environmental, social and governance (ESG)-related resolutions have played a prominent role at companies’ annual general meetings, increasing by 3% compared to 2022 in Russell 3000 companies. We explained how we reached some of our voting decisions in our voting season spotlight blog.

Shareholder resolutions on social topics, ranging from workplace diversity and inclusion to human rights, continue to grow in their popularity and this year represented 35% of shareholder proposals at Russell 3000 companies. Below we discuss some trends and reflections on proxy voting on social issues globally.

Diversity and Inclusion proposals

We continue to exercise our voting rights where we identify a lack of gender or ethnic diversity on the board. At a global level in the year to date, we voted against directors at over 400 companies due to concerns over gender diversity.

In the first half of this year, we voted against directors at more than 50 companies because of a lack of ethnic diversity in the UK, US, Canada and Australia. In the UK, we voted against directors at five companies because of a lack of gender diversity on the executive committee.

Shareholder resolutions asking companies to disclose the diversity of their management and workforces, and report on the efficacy of their initiatives, were tabled at numerous companies this year. We explained our rationale for supporting a resolution asking Las Vegas Sands to provide a matrix which reports each director or nominees' self-identified gender and race/ethnicity in our blog, as this allows investors to more accurately assess diversity among board members. The resolution earned about 18% support.

In addition to providing greater disclosure, a growing trend in shareholder resolutions this year was a focus on the effectiveness of diversity and inclusion initiatives. A resolution tabled at Berkshire Hathaway, for example, asked the company to report on the effectiveness of their diversity and inclusion efforts, including the hiring, retention and promotion of diverse talent. We explained our decision to vote for this resolution, which earned about 21% support, too.

Building diverse and inclusive workplaces remains a priority for many shareholders. This is particularly true where a company has faced serious allegations related to its corporate culture, which in some cases helped resolutions to earn majority support. A resolution asking Wells Fargo to report on workplace harassment and discrimination, for example, earned about 52% support.

Cost-of-living proposals

In the UK, high levels of inflation and its impact on low-wage employees and consumers were top of mind. Given these current pressures, our desire is that any salary increases given to executives should be equal to or at a lower rate than those of the wider workforce this proxy season.

We also expect boards to be mindful of the potential pressures faced by the wider workforce and other stakeholders when considering the total quantum of compensation packages for executive directors. We encourage companies to be as transparent as possible and explain how they are supporting their workforce and considering both, salaries and additional benefits, as part of their human capital management strategies.

Company performance on cost-of-living informed our voting decisions on the executive remuneration packages at two UK companies. For example, we voted against the remuneration report at Hilton Food Group due to concerns that executive remuneration exceeded that of the wider workforce. At Tesco we also voted against the remuneration report, because the CEO received a significant commuting allowance which we did not believe was appropriate given the challenges faced by the company’s workforce.

The tight labour market in the UK, US and elsewhere makes it especially prudent to understand companies’ plans to invest in their workforce to promote competitiveness and productivity over the long-term. Although many companies pointed to increased wages in their responses to shareholder resolutions, this is a dynamic topic which requires thoughtful engagement to understand how a company measures a living wage, and whether their total reward packages and working conditions in the round are conducive to providing a secure standard of living.

Human capital management proposals

Human capital management-related topics were a key focus of many shareholder resolutions in the US this year, as companies faced scrutiny over workplace safety, respect for employees’ rights to unionise, and provision of benefits such as paid sick leave.

We explained our voting decisions to support resolutions related to respecting freedom of association at Starbucks, warehouse working conditions at Amazon, and paid sick leave at CVS Health, on our blog. These resolutions received c.52%, c.35%, and c.26% support from shareholders, respectively.

Shareholder resolutions which responded to specific legal risks that companies are facing related to employee rights and safety tended to garner the most support amongst shareholders.

This was the case at Starbucks, where the proponent cited complaints filed by the National Labour Relations Board for the company’s response to unionising activities, and at Dollar General, where the proponent cited the over $12 million penalty the company received for repeated workplace safety violations (this resolution received about 68% support).

Both resolutions called for an independent audit of company policies on unionisation and worker safety in an effort to provide shareholders with a more objective view of how the company is handling the potential associated risks. Given the serious nature of the issues raised, and legal and financial risk they pose for the companies, we look forward to reviewing the results of the audits and will continue to engage with the companies as required.

Escalating our engagements

This year we co-filed a shareholder resolution at CVS Health, the US pharmacy retailer, asking the company to adopt and disclose a paid sick leave policy for all of its employees, including part-time employees and contractors. This followed discussions with the company where we communicated that the absence of a paid sick leave policy, which is inclusive of part-time workers, presents imminent risks to the company in regards to its ability to recruit and retain employees, encourage workforce productivity and the company’s external reputation. As described in our Engagement Blueprint, filing shareholder resolutions is one of the methods we use to escalate our engagements and use our influence to drive change.

• Read more about our decision to co-file this resolution on the voting season spotlight blog.

Human rights proposals

Human rights-related proposals were also prominent on many proxy statements this year. These resolutions addressed companies’ policies on due diligence processes which are focused on human rights issues in their operations and supply chains, as well as the human impact of products/services on consumers. In the Proxy Season Blog, we explained how we reached our decisions to support resolutions regarding targeted advertising at Meta (which received about 17% support), online safety at Alphabet (which received about 18% support), and due diligence at TJX and Caterpillar (they received about 26% and about 14% support, respectively). We also explained our decision to vote against a resolution on human rights reporting at Carlsberg (which received about 96% against).

These topics continue to be material for investors, particularly regarding holdings in the technology sector. Earlier this year, Meta was fined €390 million by EU regulators for its gathering of personal data used for targeted advertising. As financial penalties materialise, we expect to continue to hold companies to account for their handling of human-rights related issues.

What’s next?

Shareholder resolutions can be an effective way of putting ESG-related issues on the agenda for company boards and management, particularly as a form of escalation. The work does not stop here however, and it’s key that engagement continues beyond the annual general meeeting.

We believe that engagement is not a seasonal activity, and consistent and evolving discussions are essential for outcomes to be achieved. Throughout the year, we will continue to engage investee companies on what we believe are the most material ESG-related issues. We will also continue to influence change, where required. These engagements will inform how we understand companies’ risks and how well they address them, as well as influence our voting decisions over the next year.