Fidelity recently announced updates to its proxy voting guidelines. The updated policy guidelines become effective as of February 1, 2023. The policy updates as noted below relate to topics including shareholder proposals, board diversity, director capacity and commitments, and executive compensation.
Introduction and approach to policy
In the introduction to its guidelines, Fidelity has removed reference to “recognition of companies conducting themselves in ways that have important environmental and social consequences.” Further, Fidelity has also removed language to "consider potential environmental, social and governance (ESG) impacts" as part of its review process, replacing it with consideration of factors “financially material to individual companies’ and investing funds’ investment objectives and strategies in support of maximizing long-term shareholder value.”
Fidelity has also added language to outline how it reviews and considers a “company's approach to financial and operational, human, and natural capital and the impact of that approach on the potential future value of the business.” Like recent revisions made by BlackRock and Vanguard to their respective policies, these changes by Fidelity may be reflective of an evolving policy position to review individual company and investing funds’ circumstances more holistically, on a case-by-case basis. It underscores the need for companies to provide more robust and relevant disclosure to emphasize steps being taken to mitigate risk and maximize long-term shareholder value.
Review of shareholder proposals
Fidelity removed language regarding its consideration to support shareholder- sponsored proposals that requested additional disclosure from companies regarding environmental or social issues, including instances when such “proposed disclosures could provide meaningful information to the investment management process without unduly burdening the company.”
Fidelity also removed language that previously stated that it “may support shareholder proposals calling for reports on sustainability, renewable energy, and environmental impact issues,” alongside removal of language for supporting “proposals on issues in other areas, including but not limited to equal employment, board diversity and workforce diversity.”
Fidelity’s revised language under its Environmental and Social Issues section, now includes a “four-point decision-making framework” developed to “engage and vote more effectively on the growing number of submitted proposals on these topics.” The four-point framework poses the following questions:
- Is the topic addressed in the proposal determined to be financially material to the company?
- Does the proponent’s request result in new disclosure or additional information to investors, improving transparency?
- Does the proponent’s request provide value to the business or investors by improving the landscape of investment-decision relevant information or contribute to a better understanding of a company's processes and governance of the topic in question?
- Is it realistic or practical for the company to comply with the request?
Diversity, director capacity and commitments, and executive compensation
For 2023, Fidelity has incorporated racial and ethnic diversity into its revised director election guidelines, adding a new requirement that boards must include racially or ethnically diverse director representation. If a board does not have at least a single director representing a racially or ethnically diverse background, Fidelity will generally oppose the election of certain or all directors. Fidelity’s prior diversity-related policy addressed representation of gender but did not explicitly cover racial and ethnic diversity.
Fidelity also incorporated into its guidelines a new director overboarding standard for non-CEO directors, placing a limit of five total unaffiliated public company boards. Fidelity’s policy regarding director capacity and commitments prior to this update only referenced public company CEOs who could serve on no more than two unaffiliated public company boards.
In regard to executive compensation, Fidelity has added language that it will oppose compensation committee directors in instances where there is a disconnect between compensation and shareholder interests, specifically citing situations where there are:
- Concerns with a company’s performance relative to peers; and
- Concerns with the structure of an executive compensation program, including factors related to the Advisory Vote on Executive Compensation and Frequency of Say on Pay Voting.
If you have questions or comments, please contact us or call 212 440 9800.
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