Multiple investors have recently announced updates to proxy voting guidelines with respect to topics including board oversight of ESG-related matters, racial/ethnic board diversity, and unequal voting rights.
A thematic summary of these policies is provided in the report below.
Board Oversight of ESG
Investors including Charles Schwab, Northern Trust, T. Rowe Price, and AXA, have made respective revisions to 2023 proxy voting guidelines accounting for board failure to sufficiently manage and oversee material ESG risks to the business.
Charles Schwab may consider director accountability if a “company has not provided explicit disclosure of board oversight of material risks, including environmental and social risks.” In the case of contested director elections, Charles Schwab may also consider factors related to board oversight of material risks.
Northern Trust has also added language related to its process of evaluating contested director elections for which it will consider “Environmental, Social and Governance (ESG) performance.” Further, Northern Trust revised language in consideration of voting mergers and acquisitions to include “ESG governance” and its impact.
T. Rowe Price has added language regarding director accountability based on factors which may result in an escalated vote against multiple directors or the entire board due to lack of shareholder responsiveness over multiple consecutive years. This includes “persistent failure to represent shareholders’ interests or fail in the oversight of material governance, environmental, or social risks, in the opinion of T. Rowe Price.”
AXA Investment Managers states its expectations for boards to “evidence proper governance of key ESG-related risk issues,” with potential for the board chair to otherwise be accountable. Per its section for “Board Accountability”, AXA believes the board is the ultimate representative of shareholders’ interests and shall hold relevant directors responsible in case of poor management of environmental, social or governance issues, including insufficient measures taken to address climate issues or if a significant environmental, social or governance controversy has occurred, and the board has failed to take necessary preventative measures. Per its section for “Biodiversity,” AXA encourages companies with a material impact on biodiversity and natural capital more globally to put in place effective mitigation strategies within relevant timelines. If there are insufficient improvements in terms of disclosure of biodiversity-related strategy and risk management, AXA may apply an accountability vote. The board may also have accountability for companies which gain exposure to other ESG risks, such as social and data privacy, if determined there is insufficient measures to address such risks.
Racial and Ethnic Board Diversity
Investors including Charles Schwab, BNP Paribas, and AXA Investment Managers, have incorporated racial and ethnic diversity as a policy update in 2023.
Charles Schwab may consider director accountability if a “large-cap company board does not have at least one racially or ethnically diverse director or has not provided explicit disclosure of director diversity and skills.”
BNP Paribas added language to its section pertaining to “Board Elections” for which it may Abstain or vote Against if “The candidate is a member of the nomination committee, and the board has no apparent racially or ethnically diverse composition.”
AXA Investment Managers states “We are also mindful of all aspects of diversity beyond gender, especially a diversity of origins, ethnicities, and social backgrounds. For markets where this is permissible, we may also take action against the Nomination Committee Chair where there is insufficient ethnic representation on the Board.”
Unequal Voting Rights
For 2023, Geode Capital Management has incorporated an “Unequal Voting Rights” provision under its section for “Election of Directors” to apply a director accountability vote “If the Company maintains a common stock structure with unequal voting rights. Exceptions to the policy may include but aren’t limited to: Newly-public companies with a reasonable sunset provision, where the unequal voting rights are considered de minimis; or the company provides sufficient safeguards for minority shareholders.”
BNP Paribas added language to its section pertaining to “Board Elections” for which it may Abstain or vote Against if “The candidate is a member of the governance/nomination committee (or board chair in the absence of votes) where there is a dual class share system with differential voting rights.”
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