In this article, the authors, from advisor PJT CamberView, talk about their takeaways from the 2019 proxy season, which they expect to see as part of the conversation in the fall.


Overboarding policies reflect the concern that directors who sit on too many boards will not be able to devote adequate time to their duties to the company. This year, the authors indicate, more rigorous overboarding policies from large asset managers, such as BlackRock and Vanguard, led to “significant opposition to directors of Russell 3000 companies,” the highest level since 2011. In particular, the focus was on public company executives sitting on more than two boards. In addition, the authors report, “a number of directors saw their support drop 25 or more percentage points on a year-over-year basis.”


In a 2016 article, the WSJ reported that the attention to overboarding was also largely attributable to heavier board workloads in recent years. According to the article, directors at public companies spent an average of 248 hours a year for each board on which they served, up from nearly 191 hours in 2005, according to surveys by the National Association of Corporate Directors. The WSJ asked a director holding board seats at five large companies (including one position as chair and three comp committee assignments) to keep a diary of the director’s activities. The director recorded performing “board duties on 30 of the 33 days monitored, including most weekends. On Oct. 9, this person left New York at 6:30 a.m. to fly to Boston and confer with two major shareholders. A different day, the director attended a 12-hour board meeting for another company.” Some directors are able to juggle several board seats only because not all of their companies have calendar-year fiscal years. (See this PubCo post for comments from former SEC Chair White and other members of the SEC accounting staff regarding audit committee overload and this PubCo post discussing a KPMG survey reflecting concerns about audit committee overload.) According to one commentator, “more boards have balked at prospective directors with three seats because ‘they don’t really want to be somebody’s fourth….Boards want to ensure that the new director will have the time….They also are concerned about the optics of a too-busy member.’’’ (See this PubCo post.)

Environmental and Social Risks

The authors cited the ISS report that, for the third year in a row, the number of E&S shareholder proposals exceeded governance proposals, with nearly half receiving over 30% of votes in favor, almost a 10 percentage point increase over the prior year. In addition, they highlight the prominent role of investor coalitions, such as the $33 trillion Climate Action 100, which was involved in negotiating the settlement and withdrawal of climate-related shareholder proposals at several companies. The authors expect this collective action to continue on climate risk and preferred frameworks for E&S disclosure.


According to ISS, the proposal filed most often was for an independent board chair (66 filings), followed by political contributions disclosure (62 filings) and board diversity (45 filings). It is important to note that, historically, while governance proposals have often garnered significant support, E&S proposals have not. Remarkably though, so far in 2019, the levels of shareholder support for E&S proposals (30%) are only nine percentage points lower than for governance proposals (39%), the lowest spread on record. Using 30% as a threshold for significant support, ISS found that, in 2019, 48% of E&S proposals received shareholder support over 30%. This shift in voting support may reflect a recognition by investors of the financial impact of environmental risk.

Majority votes in favor of several climate-change proposals in the last few proxy seasons have been attributed to changes of position on the issue from asset manager BlackRock and other institutions. BlackRock voting guidelines have provided that, with regard to E&S issues, it may vote against directors or support shareholder proposals on this issue, taking into consideration whether the company has taken steps to address the concern and implement a response, as well as any near-term economic disadvantage to the company related to the issue. (See this PubCo post.) An analysis by non-profit CDP (fka the Carbon Disclosure Project) of responses to its climate change questionnaire for 2018 showed that, among the group of 500 largest companies, 215 companies (representing almost $17 trillion in market cap) responding to questions regarding financial impact estimated, in the aggregate, almost a trillion dollars at risk from climate-related factors. In terms of likelihood of occurrence, about half of these risks were reported as “likely, very likely or virtually certain,” while most of the remaining risks were reported as “about as likely as not.” The majority of these risks (about $747 billion) were expected to materialize in the short- to medium-term (around five years or less). (See this PubCo post.) Others have emphasized that there is a viable business case for ESG. (See this PubCo post and this PubCo post.)

The authors also identify another trend in the growth of investor-developed “sustainability data screens for investment and stewardship purposes. These systems are built upon proprietary analysis as well as various reporting frameworks and sustainability ratings providers and are intended to evaluate and incorporate environmental and social factors throughout the investment cycle.” These include, for example, State Street Global Advisors’ R-Factor system, which “leverages ESG materiality frameworks to create a unique company score that is used to help its clients make investment decisions and is integrated into the firm’s stewardship program,” as well as new rating and screening frameworks from T. Rowe Price and Columbia Threadneedle, which use ESG data to help in investment decision-making.

Say on Pay

The authors cite data from Semler Brossy showing that average support for say on pay among Russell 3000 companies rose slightly to 91%, but among the same group, failures also rose to slightly over 2.2%; data from ISS showed that 13.5% of say-on-pay proposals received less than 80% support. The authors report that shareholders identified a focus on “one-time or supplemental awards and a desire for plan design that is tightly linked to challenging strategic and financial measures.” However, investors are no longer wedded to traditional metrics like TSR and, so long as the disclosure is clear, will support metrics that are more “specific to company circumstances and strategy.”

In assessing the alignment between pay and performance, the authors observe that some investors have “created proprietary quantitative pay screens to flag potential disconnects that can prompt an engagement request to understand the underlying causes. Companies that faced investor challenges this spring on compensation can expect further discussion this fall into the rationale behind the compensation committee’s decision-making and how investor feedback has informed potential changes to plan design.”


According to this study by academics from the University of Pennsylvania Law, Rutgers Business and Berkeley Law Schools, an unfavorable say-on-pay vote does not necessarily mean what it seems to say on the surface. Say on pay was expected to help rein in excessive levels of compensation and, even though the vote is advisory only, ascribe some level of accountability to boards and compensation committees that set executive compensation levels. So far, however, say-on-pay votes have served largely as confirmations of board decisions regarding executive compensation and not, in most cases, as the kind of rock-throwing exercises that many companies had feared and some governance activists had hoped. The study reported that, since 2011, the average annual percentage of say-on-pay votes in favor has exceeded 90%, while “the percentage of issuers with a failed say-on-pay vote has never exceeded 3% and, in 2016, that number dropped to just 1.7%.”

What did the few failed (or low) votes really mean? According to the study, while both excess compensation and pay-performance sensitivity affected the level of shareholder support, “even after controlling for these variables, a critical additional driver of low shareholder support for executive compensation packages is the issuer’s economic performance.”

More specifically, the study found that higher levels of excess compensation were correlated with lower shareholder support and that higher CEO pay-performance sensitivity was correlated with a lower probability of a low vote. But the most significant findings related to the impact of economic performance in the one year prior to the say-on-pay vote. With regard to the variable of stock-price performance, the study found that shareholders were only “somewhat sensitive” to excess CEO pay when stock-price performance was strong. The study concluded that company economic performance may be just as—if not more—pivotal to the outcomes of say-on-pay votes than pay itself. (See this PubCo post.)


While the number of activist attacks in the U.S. declined in the first half of the year relative to last year, activists “have continued to target high-profile friendly and hostile M&A deals in the U.S. and abroad, introducing complex dynamics into already complicated dealmaking. According to Activist Insight, just six activism contests went the distance in the first six months of 2019, a substantial drop off from prior years as settlements reached before proxy votes remain a common tactic to defuse activist pressure.”

However, other market constituents, including active fund managers and employees, seem to be feeling their oats, initiating activist campaigns or taking public stances in M&A transactions that had an impact on deal dynamics. The authors report that active fund managers have recently been “adopting activist stances and overlaying a governance focus to help differentiate themselves in a market that continues to see outflows to passive funds.” The authors characterize the growth in employee activism (not through organized labor) as “the most prominent new trend in ‘activism.’” This trend, which presented a new challenge for managements and boards, was manifested in employee walkouts or employee-sponsored shareholder proposals addressing issues such as climate risk and NDAs relating to discrimination or harassment. What’s especially novel, say the authors, is “the ability of employees to find common cause with certain investors, and effectuate sophisticated campaigns via traditional and social media.”


The authors suggest that there is increasing “competition to demonstrate superior investment stewardship,” which has led investors to “become more proactive and assertive than ever.” This trend is reflected in “greater accountability for directors across their board service.” In addition, some major asset managers have begun to initiate engagement with companies on specified agenda topics, with the result that securing meetings has become “both more difficult and also more important to get right. Management teams and boards should take an investor-by-investor approach, including identifying the correct opportunities to deploy a director, building off of prior conversations and understanding their investors’ key focus areas and preferences.”