2024 proxy season review: Five takeaways

Our 2024 proxy season review highlights five takeaways to help directors understand proxy season trends and changing stakeholder expectations:

1. Director support stayed high, with those in chair roles under scrutiny

Investors are focusing more on director accountability and individual director qualifications and performance. This is particularly true in the wake of universal proxy rules that allow investors to mix and match candidates from different slates in a proxy contest. Despite the added scrutiny, support for directors increased, with S&P 500 directors averaging 96.3% support compared with 95.8% in 2023. Still, subtle shifts in voting outcomes in recent years demonstrate investors’ increased willingness to hold board members – particularly those holding board and committee leadership positions – accountable when expectations are not met. Nominating and governance committee chairs averaged 92.4% support this year and represented 34% of directors receiving more than 15% in opposition votes.

2. Investor activism continued to grow and evolve

2024 was a busier year for activism, with 2.4% more campaigns than 2023. In this heightened activism environment, a higher cost of capital and universal proxy rules are driving changes to the landscape. With capital markets recalibrating to the realities of increased capital costs, following a prolonged period of historically low interest rates, activist investors are seizing the opportunity to question management’s past capital allocation choices, particularly on mergers and acquisitions (M&A) perceived as detrimental to shareholder value. Further, director nominations by multiple activists is a development companies and investors will need to navigate; more single-issue environmental, social and governance (ESG) campaigns may emerge; and board composition and performance (including related to succession planning) are under more scrutiny.

3. The shareholder proposal landscape has shifted

Support surged for governance-focused shareholder proposals, jumping from 31% on average in 2023 to 42% this year. This change was driven largely by an increase in proposals to eliminate supermajority voting requirements, which averaged 72% support. Meanwhile, support stabilized for environmental and social shareholder proposals after a two-year decline. This reflects that investors and companies have recalibrated to a landscape marked by more robust company sustainability disclosures and narrower, more prescriptive proposal requests. Anti-ESG proposals grew in volume but continued to garner just 2% support on average, reinforcing that investors remain committed to stewardship on material environmental and social matters. A variety of developments on the horizon – from a rapidly evolving global sustainability reporting landscape to election-year politics, as well as expanding proxy voting choice programs and the outcome of high-profile litigation against certain shareholder proponents – may compound the complexity in this space.

4. Companies gained support for say-on-pay

Investor support for say-on-pay proposals climbed to its highest levels in years. That came on the heels of a new upward trend in support that emerged in 2023, when companies got a boost after years of decline. This year companies managed to increase those support levels further, with average support ticking up to 90% for S&P 500 say-on-pay votes, up from 89% last year and 87% in 2022. Still, ultimately say-on-pay votes reflect investor views on company’s specific executive pay programs. Investors shared with us several pay topics to which they would be paying closer attention this year, which may provide insight into areas of vulnerability moving forward. These topics include performance stock units, one-time special awards, pay magnitude and equity, and ESG pay metrics.

5. AI governance is a new focus

Our recent institutional investor outreach revealed an emerging focus on “responsible AI,” an approach allowing leaders to take advantage of AI’s transformative potential while mitigating risks. Nineteen percent of investors said they planned to prioritize responsible AI in their engagements with companies in 2024, with most expecting AI to be a subject of discussion with their portfolio companies. By far their most-cited topic of interest (42% of investors) was AI governance and the role of the board in overseeing AI risks and opportunities, and a variety of new shareholder proposals this year underscore investor interest in this space. Companies are starting to heed the call for AI governance transparency. That includes companies disclosing AI-related director experience and training, committees starting to mention AI among their oversight responsibilities, AI being cited as a material risk and an area of board risk oversight, and some companies highlighting responsible AI frameworks.

In this context, the work of understanding and acting on proxy voting outcomes continues to be more challenging and more important for company leaders. Ultimately, the proxy season results underscore the continuing need for management teams and boards to understand the views and policies of top shareholders, engage directly as needed, and adjust the company’s strategic communications accordingly.