The Companies We’re Watching During Proxy-Voting Season 2024

It’s proxy-voting season, that reliable springtime rite when shareholders get to vote on issues affecting a company’s risks and its place in the world. You can read a primer about proxy voting here.

This year brings new challenges for investors and companies, including a more combative season and a focus on artificial intelligence. You might see fewer requests for climate disclosures, as regulators step in to fill the gap. There are new opportunities for individual investors, too.

We asked Morningstar experts Jackie Cook and Lindsey Stewart to share their views about what to expect from the proxy season in 2024. Cook oversees a proxy-advisory program at Morningstar Sustainalytics. Stewart heads up investment stewardship research at Morningstar. These are condensed, edited excerpts from our conversation.

What to Expect From Proxy-Voting Season

Leslie Norton: Let’s set the stage. Jackie, how is this proxy season different from other proxy seasons?

Jackie Cook: I’d refer to two recent news items. First, Exxon Mobil XOM is suing shareholders who filed a resolution asking it to set stronger climate targets, even after the shareholders agreed to withdraw their resolution. That sets up a more combative tone to the proxy season. Second, a Delaware judge voided Elon Musk’s 2018 compensation package at Tesla TSLA, criticizing the pay-setting process and the board’s independence. This could sharpen shareholders’ attention on compensation and board governance in the months ahead.

There’s also a lot of urgency around physical climate impacts, after a record-hot 2023, and nature tipping points, with the imminent collapse of a critical Atlantic Ocean current system. This could add a bit of energy to the proxy season. Then there’s focus on supply chain due diligence and the role of the board in this brave new world of artificial intelligence, with growing focus on the competencies and qualifications of board members.

Lindsey Stewart: One continuing theme from last year is the focus on political influence, activity, and expenditure. It’s one of the biggest years for people going to the polls. So asset managers and asset owners are a lot more interested in finding out exactly how companies are influencing political activity and lobbying and how aligned that is with their sustainability objectives.

Keep an Eye on Tesla, Apple, and Applied Materials Proxy Votes

Norton: What company votes will people be paying attention to? Jackie, you mentioned Tesla, but the news was about a court decision.

Cook: The case raises questions about Musk’s too close relationships with individual board members. [Ed note: Tesla hasn’t yet published its 2024 proxy.] Board independence has always been basic good governance, and proxy voting is about keeping boards accountable.

We saw some interesting votes in the second half of 2023. Nike’s NKE and Oracle’s ORCL shareholder meetings both had resolutions asking for gender and racial pay-gap reporting, which earned majority support from independent shareholders—that is, nonfamily and noninsider. This issue is on Apple’s AAPL and Applied Materials’ AMAT proxy ballots, coming up for vote in the next few weeks.

Two recently voted resolutions at Tyson Foods’ TSN annual meeting also set the tone for 2024. A proposal regarding human rights in the supply chain got 55% support from noninsider shareholders. A second resolution, asking Tyson to explain how its lobbying activities align with climate targets, got 44% support.

Stewart: Workers’ rights will continue to rumble on this year. Starbucks SBUX and Amazon.com AMZN are certainly in the spotlight. Shareholders are focused on whether management can bring in the people they need and retain them, and also on whether those workers are being treated fairly. Do they have the right working conditions? Are they safe at work?

Norton: In the US, advancing social issues has grown tough for investors.

Stewart: Not in proxyland. Morningstar’s research suggests that, in the US, social issues have predominated among environmental, social, and governance shareholder proposals. Proposals on climate and the environment have tailed off from a 2020-21 peak, as regulations pick up the job being done by shareholder proposals. A diverse range of social resolutions—workforce issues, political issues, wider society, even the effects of technology upon society—have taken up a lot of the increase in volume.

Cook: Even with the conservative backlash against diversity, equity, and inclusion, we saw in 2023 that DEI was actually the strongest supported of all the resolution categories on US corporate proxy ballots. The second-most-supported category includes workplace issues, such as living wage, freedom of association, and so on. The category with the greatest number of resolutions was climate change, but these didn’t garner as much support as previous years.

Investors Wait for SEC Climate Rules

Norton: What trends do you expect in terms of climate this year?

Stewart: Climate is splitting into several issues. There’s a focus on transition planning and targets. Some companies are still being encouraged to make core climate disclosures, as in their level of alignment with the Paris Agreement. What are companies doing with regard to their scope 1 and 2 disclosures, which are in their direct control, and scope 3 disclosures, which are within their wider value chain? Shareholders, particularly in the US, haven’t been particularly keen to support those proposals. We’re still expecting the Securities and Exchange Commission to finalize its climate disclosures rule in April. If that drops in the middle of proxy season, it may prompt some managers to modify their views.

Cook: Importantly, climate laws passed in California and in Europe in 2023 have overtaken the SEC. Companies should be measuring and reporting scope 3 emissions, at a minimum, under the new disclosure rules and the International Sustainability Standards Board’s voluntary framework, which is part of the IFRS Foundation. So, there’ll likely be fewer resolutions specifically asking for emissions disclosure.

How Big US Investors Vote on ESG

Norton: What voting trends do you expect?

Stewart: Quite a lot of large shareholders have been more reluctant to support ESG shareholder resolutions, partly because of their variable quality. They feel some are poorly worded or not material to shareholders or repetitive of ongoing management action. Big US funds have retreated in their support for ESG proposals, while European money managers and other core shareholders continue to back them.

Most of the big movements in voting support happened in 2023. The voting policies of several of the largest managers are more specific about ESG proposals, but the wording allows for a lot of flexibility of interpretation. So even if their voting policies include language supportive of ESG proposals, one can’t take for granted the manager will support a particular proposal. It’s important to be mindful of a manager’s voting record when thinking about which managers are best aligned with your personal views.

It’s important to bear in mind that a lot of what was being asked for in shareholder proposals is now a matter for regulation. So, that can be seen as progress.

AI and Proxy Voting

Norton: Artificial intelligence is a growing focus for investors. How will this affect the proxy season?

Cook: AI has huge implications for boards and corporate governance. Risks related to specific AI-driven technologies have been previously addressed in shareholder resolutions. But, with the rapid adoption of generative AI technologies across workplaces over the past year, shareholders are now starting to ask boards to explain how they’re exercising oversight of the associated risks: Has the company adopted guidelines on the responsible use of AI across its operations?

A resolution on Apple’s ballot up for vote later this month asks the board for a report on ethical guidelines for its use of AI. Cybersecurity risk is amplified by AI technologies. New SEC cyber-risk disclosure rules specifically ask for reporting on board oversight.

Anti-ESG Still There

Norton: The number of so-called anti-ESG resolutions has been growing. How to recognize them?

Cook: Last year, we saw a more than 100% increase over 2022 in the number of resolutions put forward by groups that are typically opposed to climate actions; diversity, equity, and inclusion; and other sustainability measures by companies. And this year, already three out of the five resolutions on Apple’s ballot are put forward by so-called anti-ESG groups. Both resolutions on DEI are put forward by the National Legal and Policy Center and the National Center for Public Policy Research, two anti-ESG groups, as well as a couple of new grassroots organizations that seem to have emerged as resolution filers.

They look very similar to pro-sustainability ballot items, such as requesting a cost-benefit analysis of the climate actions that a company might be considering.

Stewart: A lot are filed by the same proponents over and over. They tend to crowd around several of the same issues. They use language like respect to civil liberties or return to meritocracy. But investors need to be careful, read the resolution properly, read the supporting statement properly, find out the proponents.

Cook: In developing our voting recommendations, we aim to support sustainable business practices, so we do look at proponents and at how proponents use the AGM platform.

“Anti-ESG” resolutions get extremely low support, ranging between 1% and 4% in 2023. So, a lot of investors seem to recognize them when they come up on proxy ballots.

For Retail Investors, New Proxy-Voting Options

Norton: Lindsey, you recently wrote about pass-through voting, in which big companies are allowing select index fund investors some choice on how to vote proxies for the underlying companies.

Stewart: Pass-through voting, or proxy-voting choice, is a system that some of the largest passive fund managers have implemented that allow investors to select alternative voting policies. You can choose policies that are pro-sustainability, or vote more in line with management, or take a particularly governance-focused view and not necessarily supporting environmental or social proposals quite to the same extent. So, investors have a choice of deciding which of these policies best fits their own priorities. And in certain funds that are being rolled out as a pilot this year, they can apply those choices to their own shareholdings.

Norton: Will it change voting trends?

Stewart: We’re still in an early stage, and I don’t think there’s the volume for a massive change. It really does depend on the propensity of retail investors to fill in yet one more form every year. But it’s providing investors with one more option to express their particular views on environmental and social topics, which gives the shareholder more of a stake.

Norton: Any notable filers?

Cook: Retail investors seem more involved in filing resolutions. New platforms are aggregating retail investor votes to make shareholder resolutions and supporting co-filing opportunities, including Tulipshare and Investors for Paris Compliance, for instance. Tulipshare is filing a resolution asking Amazon to report on working conditions for warehouse employees.

Some large European investors are filing shareholder resolutions: Legal & General, AXA, and PGGM [the Dutch pension investor]. These add a degree of credibility to a shareholder resolution, which can attract support for the proposal.

Stewart: We’re seeing European or international shareholders filing or co-filing resolutions. Amundi and BNP Paribas have also been active on that front. Another to watch out for is Norges Bank Investment Management, the Norwegian sovereign wealth fund and Europe’s largest investor. They’ve not been filing so far but have taken a much more assertive line toward shareholder proposals and even climate litigation.