2022 proxy season of listed companies: analysis and guidelines

Georgeson and Cuatrecasas present the 11th edition of their report “Corporate Governance and Institutional Investors”

2022 proxy season of listed companies: analysis and guidelines
February 15, 2022

As in previous years, Cuatrecasas and Georgeson have jointly published “Corporate Governance and Institutional Investors: Preparing for the 2022 Proxy Season” (11th edition). This guide is aimed at helping Spanish listed companies to prepare for their next general meeting of shareholders. The guide contains a detailed and exhaustive analysis of the behavior, during the last proxy season, of institutional investors and proxy advisors in relation to the IBEX-35 companies and the top 40 companies on the Spanish continuous market (“Top 40 companies”).

Level of participation

Participation in the shareholders meetings of IBEX-35 and Top 40 companies has increased, compared to 2020, by 0.9 points and 4 points, respectively. In 2020, during the first few months of the pandemic, the participation of foreign institutional investors increased while that of domestic investors decreased, particularly in the case of retailers. The increased participation in the 2021 proxy season seems to be related to the recovery of the vote of domestic investors.

Exclusively virtual shareholders meetings

Initially, it was expected that the reference proxy advisors on the Spanish market would be against the holding of exclusively virtual shareholders meetings. However, most companies received the recommendation of a vote in favor from ISS and Glass Lewis as soon as the lawmaker recognized, in article 182 Spanish Companies Act, the right of companies (listed and unlisted) to authorize the holding of virtual meetings in their bylaws.

However, some investors e.g., Vanguard, Legal & General and State Street expressed their objection to virtual meetings. They consider that only hybrid meetings (which enable some shareholders to participate virtually and others in person) guarantee equal rights for all the shareholders.

Importance of say-on-climate vote increases

More and more companies put their climate action plans to the advisory vote of the shareholders meeting. AENA, Ferrovial and Iberdrola were the first companies to do this, but we hope that, in the 2022 proxy season, more companies will include proposals in this area.

In particular, investors hope that the following will be put to an advisory vote: (i) emission reduction reports, and (ii) the approval of the climate change strategy. Norges announced that it will pressurize companies to establish carbon neutral plans and sell its shares if it is not successful. It will also reinforce its activity concerning the financial sector, which is particularly exposed to the climate risk indirectly.

In his last annual letter to CEOs, Larry Fink, founder and CEO of BlackRock, highlighted that most stakeholders expect companies to play a role in decarbonizing the global company. He considers that there are few aspects that will affect capital allocation decisions and the long-term value of companies more than how companies handle the global energy transition in the coming years; he emphasizes that the companies that do not adapt will be left behind. In his letter, he gives details of the information that BlackRock expects to receive from companies in the 2022 proxy season and he asks them to establish short-, medium- and long-term objectives for greenhouse gas reductions. BlackRock stresses how important it is for published reports to follow the model established by the Task Force on Climate-related Financial Disclosures (TCFD).

The relevance of non-financial reporting and climate accountability

The largest asset managers worldwide are working towards an almost complete integration of ESG factors in their investment policies. Some investors, such as BlackRock, have stated that they will vote against directors that go for re-election in companies in which non-financial information is not reported according to the Sustainability Accounting Standards Board or companies in which no public statement has been made to do so in the next year.

In the case of industries that cause most greenhouse gas emissions, investors and proxy advisors are going to start to require minimum criteria associated with how companies are managing climate change risks. The TCFD standard is one of the most popular standards in this area among investors and proxy advisors. The members of sustainability commissions or of the commissions responsible for these matters could have their re-election affected if the company does not disclose information appropriately in line with this standard.

Regarding this matter, Carlos Sáez Gallego, Country Head Spain at Georgeson, says: “The 2022 proxy season will be characterized by increased scrutiny of the investors in relation to remuneration and ESG. These areas have become hot topics for Spanish listed companies. If the investors consider that these matters are not being managed correctly by the board, this could affect the appointment and re-election of the directors responsible for supervising these matters.” 

Remuneration of directors

Again this year, the proposals involving directors’ remuneration were those that received the most “no” votes in the 2021 proxy season, both in IBEX-35 and Top 40 companies. In the new proxy season, remuneration will continue to be one of the main bones of contention for listed companies.  Some companies will have to adapt their bylaws and policies to the recent reform of the Spanish Companies Act and many are already amending their variable remuneration schemes to adapt them to the environmental, social and corporate governance criteria (ESG criteria).

There is increasing pressure from investors regarding checking that remuneration is based on the pay-for-performance concept. Companies must provide clear and complete information that makes it possible to analyze the level of individual compliance for each of the concepts used in the short-and long-term remuneration schemes.

Board structure and composition

The key aspects for institutional investors and proxy advisors continue to be board independence and diversity, understood as a set of variables, including gender, ethnicity, knowledge and experience, age and the geographical location of the directors.

In general terms, the institutional investors and proxy advisors establish a minimum board independence threshold of 50%. As an exception, and in line with Recommendation 17 of the Spanish Corporate Governance Code of Companies, they reduce this threshold to 33% in the case of controlled companies or companies with a very small market capitalization.

Due to the type of companies, the levels of independence are higher in IBEX-35 and Top 40 companies. Of the IBEX-35 companies analyzed, 68% have independence of over 50%, 29% have an independence level between 33% and 50%, and only one company does not reach the minimum 33% threshold. Of the Top 40 companies analyzed, 35% have independence of over 50%, 48% have an independence level between 33% and 50%, and 18% do not reach the minimum 33% threshold.

Due to the characteristics of the Spanish market, the figure of the executive chair is still quite common in Spanish listed companies. In general terms, proxy advisors are against the appointment and re-election of chairs that are, at the same time, the top executives of a company. This is the case in 18% and 30% of IBEX-35 companies and Top 40 companies analyzed, respectively. Without prejudice to the above, the proxy advisors are willing to change their position regarding executive chairs based on the characteristics of each company and the existence of counterweight mechanisms.

Board gender diversity

The Spanish Corporate Governance Code for Listed Companies recommends that female representation on boards should reach 40% before the end of 2022. In their voting policies, the reference proxy advisors on the Spanish market warn that, in general terms, they will vote against the chair of the appointments committee when female presence does not reach at least 30% of the board.

In the IBEX-35 companies, there are 17 more female directors than in 2020, representing a total of 141 female directors. Of them, 99% are external directors, and the majority are independent (79%). In the Top 40 companies, there are 118 female directors, 98% of which are external directors, and 66% of these are independent. Due to the shareholder structure of these companies, the percentage of proprietary directors is notably higher on the boards of directors of Top 40 companies (31%) than on the boards of IBEX-35 companies (15%).

Action plans to deal with high levels of dissent

In those companies that had a high level of dissent (20% “no” vote and abstention) regarding a certain item on the agenda of the 2021 shareholders meeting, both proxy advisors and institutional investors expect a specific plan of action to reduce the amount of dissenting votes. This is particularly important regarding matters related to the board of directors’ remuneration, gender diversity and level of independence.

Cuatrecasas partner José Luis Rodriguez highlighted that “in 2022, the investors’ growing concerns regarding sustainability—particularly regarding environmental and social matters—will generate more proposals in this area to be put to the vote of the general meetings. In this context, the initiatives that facilitate the establishment of parameters and the comparability of the data provided by companies will be particularly important. Consequently, and to ensure the executive directors’ alignment with the investors’ interests, the inclusion in the remuneration systems of objectives linked to sustainability-related matters will continue to be promoted.” 


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February 15, 2022