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Proxy Voting Faces Increasing Complexity Amid ESG Movement
Mar 28, 2023
Throughout most of the 20th century, shareholders typically voted in accordance with management. However, this trend began to shift in the late 90s as shareholders challenged issues such as exorbitant CEO payouts, poison pills, and other governance concerns.
As the 21st century progressed, an increasing number of environmental and social issues emerged alongside traditional governance matters. Thresholds for passing such proposals at numerous companies were quite high—often exceeding simple majorities or pluralities. Activists discovered that by framing proposals as recommendations or requests for reports, they could accumulate enough support for their proposals to be reintroduced annually.
Under the current administration, a wider range of shareholder proposals has gained traction. In 2022, McDonald's faced a proxy contest regarding the treatment of pigs, though Egan-Jones sided with management as McDonald's did not own any pig farms.
These environmental, social, and governance (ESG) votes have become challenging for many firms, leading them to settle with activists before proposals reach the proxy stage. The prevalence of non-core issue votes has raised questions about the potential financial impact on investors, retirees, and other individuals who rely on investment income.
Energy-producing and conservative states have also expressed concerns about the potential costs associated with decreased demand for oil and natural gas, as well as the implications of dwindling fuel sources for electrical generation. Consequently, a countermovement to ESG investing has emerged, with some referring to it as "anti-ESG.” Some state officials are demanding a refocus on investment and proxy voting strategies centered on maximizing shareholder returns.
States like Texas have already imposed restrictions on certain financial firms, and more legislation targeting ESG investing is being considered [1]. The Texas Anti-ESG Bill, indicate a rising opposition to ESG investing. The bill targets public pensions and insurers, attempting to restrict investment strategies that prioritize ESG factors over financial performance. Further, investment companies operating in energy economies and conservative states are now under increased pressure to ensure that their ESG strategies and voting policies are tied directly to enhancing shareholder returns. As a result, offering proxy voting choices has become essential for firms servicing pensions and state-regulated investors such as insurance companies.
Considering the increasingly polarized landscape of proxy voting, companies and investors require nuanced guidance to navigate these complexities. Egan-Jones Proxy Services offers a wealth-focused policy to provide proxy recommendations and issues votes, catering specifically to the needs of investors who prioritize wealth generation and financial performance.
[1] https://www.bloomberg.com/news/articles/2023-03-03/texas-anti-esg-bill-targets-public-pensions-insurers?leadSource=uverify%20wall
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