The Ritz Herald
The Charging Bull and Fearless Girl statues face each other on Lower Broadway in New York City, March 22, 2017. © Mark Lennihan

In 2020, Companies Will Continue to Face Pressure to Diversify Their Boards, Address Pay Gaps, and Expand Political Contribution Disclosure

The corporate world may be a step closer to reaching consensus

Published on December 25, 2019

In a report released today, The Conference Board finds that the environmental and social policies of corporations will continue to take center stage in the 2020 shareholder voting season. Institutional investors will continue to focus on issues pertaining to board diversity, disparities in the compensation of female employees, and transparency around corporate political activities.

Conducted in collaboration with ESG data analytics firm ESGAUGE, leadership advisory firm Russell Reynolds Associates, and the Rutgers Center for Corporate Law and Governance, Proxy Voting Analytics (2016-2019) and 2020 Season Preview provides a comprehensive analysis of the most recent trends in shareholder voting and activism across the entire Russell 3000, as well as a preview of what corporations should expect in the year ahead. Key insights include:

Board composition is likely to continue to be a critical issue in 2020, prompting companies to evaluate existing skillsets, the overboarding of incumbents, and the diversity of new nominees. In the Russell 3000, the number of directors receiving less than 50 percent support level has climbed from 37 in 2016 to 54 in 2019. Similarly, The Conference Board counted 421 directors who received less than 70 percent of votes cast at this year’s annual shareholder meetings; there were only 273 in 2016.

“While these remain small numbers overall (more than 16,000 directors were up for re-election in the Russell 3000 in the examined 2019 period), they are part of a new upward trend, and that reflects some large institutions intensifying their scrutiny of board composition,” said Matteo Tonello, Managing Director of ESG Research at The Conference Board and the author of the publication.

For example, CalPERS, the largest public pension fund in the country by volume of managed assets, recently pointed to issues of diversity and concerns about directors serving on multiple other public companies’ boards as the main factors influencing its decision to step up its vote against certain incumbents. And, in early October 2019, New York City Comptroller Stringer announced the launch of a third phase of its Boardroom Accountability Project, calling on companies to adopt the so-called “Rooney Rule” and include diversity candidates in searches for new directors.

“Vote no” campaigns have been surging, with investors being galvanized by initiatives to refresh board composition. The last few years have seen a surge in “vote no” campaigns and other forms of “exempt solicitations.” In such instances, a shareholder solicits others to withhold their votes at a director election or to vote against a management proposal or a nomination to the board of directors submitted by management, but does not circulate a dissident’s proxy card.
In the 2019 period examined for this report, shareholders engaged in 124 exempt solicitations against management of Russell 3000 companies, compared to 100 solicitations of the same period in 2018 and 79 in 2016. By way of comparison, there were only 47 in the corresponding 2013 period and 18 in 2010.

Justus O’Brien, co-lead of the Russell Reynolds Board and CEO Advisory Partners Practice, noted that “the analysis points to ever-growing scrutiny over board composition, suggesting the need to periodically evaluate director skill sets and adopt refreshment strategies as needed.”

The demand for corporate political activity disclosure may reach a tipping point in the months preceding the next presidential election. While endowment funds of religious orders and special stakeholder groups were the first to call attention to social and environmental policies of corporations, these issues have now moved to the front and center of proxy seasons for traditional investors. The topics are wide-ranging: They span political contribution disclosure to compliance with human rights in the supply chain, to the disclosure of business risks resulting from the opioid crisis to the adoption of a climate change policy.

“Even though social and environmental shareholder proposals still tend to fail, the data show a slow but steady upward trend in terms of voting support,” said Matthew Goforth, Vice President, Corporate Solutions at ESGAUGE, the data provider that contributed to the study. “In the months preceding the next presidential election, companies may witness a record number of shareholder proposals and engagement efforts on the disclosure of political activities, including monetary contributions to campaigns and lobbying.” (It’s a category under which average investor support level has risen from 24.6 percent in 2017 to 33.6 percent in 2019.)

Companies should be prepared to consider disclosure on gender pay equity. Prominent corporations such as Amazon, American Express, Intel, and Facebook were among the recipients of shareholder proposals on gender pay equity in 2019. While none of these proposals passed, several companies that had previously been the target of similar requests preempted new investor demands by volunteering information on their compensation policies and by pledging to close the gaps. As just one sign of the issue’s rising significance, a popular gender equality index, tracking the most forthcoming companies on issues of gender diversity and pay equality, has doubled in size in 2019. Whether they choose to publicize their findings or not, companies should consider gathering accurate internal data on this issue and what steps to take in light of the findings.

Directors and executives should be aware that some investors are now targeting governance topics at smaller firms. After years of decline, the volume of shareholder resolutions on majority voting and board chair independence rose again in 2019, as institutional investors are shifting their attention to the smaller public companies outside of the S&P 500. That cohort has thus far remained immune to changes in their director election system and board leadership model. Ending a few years of hiatus, in 2019 CalPERS has been resuming its push for smaller Russell 3000 companies to also change their director election model to majority voting.

“The role of and expectations for public company directors continues to increase with greater oversight on topics from ESG to pay equity to board quality,” said Rusty O’Kelley, co-lead of the Russell Reynolds Board and CEO Advisory Partners Practice. “Smaller boards are soon going to feel that heightened scrutiny from institutional investors and will need to make changes in how they operate or risk negative investor votes.”

The publication is part of The Conference Board Corporate Intelligence portfolio of benchmarking data and analysis on board practices, executive and director compensation, corporate communications and investor relations, corporate sustainability, and corporate citizenship and philanthropy. Visit

“Both the three-year trend and the 2019 snapshot suggest that the proxy ballet between corporations and investors has finally reached maturity. We see fewer but more focused proposals. Shareholders use alternative ways of communication—engagement, exempted campaigns, social media—when a formal proposal is not necessarily the most effective one,” said Matteo Gatti, Professor of Law at Rutgers Law School. “The corporate world may be a step closer to reaching consensus on once contentious corporate governance issues such as majority voting, board declassification, and elimination of supermajority requirements. Extensive focus on social and environmental matters comes from all the major players in the investment industry, and not just CSR activists. All these indicators point to a better use of the shareholder proposal device and a more sophisticated dialogue between stakeholders.”

SOURCE The Conference Board
Staff Writer