2024 proxy season of listed companies: analysis and guidelines

Georgeson and Cuatrecasas have published the 13th edition of the guide ‘Corporate Governance and Institutional Investors: Preparing for the 2024 Proxy Season’, which is aimed at helping Spanish listed companies to prepare for their next general meeting of shareholders and to anticipate the demands of institutional investors and proxy advisors. With this in mind, the guide contains an analysis of the last proxy season of the Ibex-35 companies and the top 40 companies on the Spanish continuous market (“Top 40 companies”).  

According to Georgeson, in 2023, the level of participation at the shareholders meetings of Ibex-35 companies and Top 40 companies increased by over two points and 1.5 points respectively, compared to 2022. The largest increase was observed in companies in which the participation of institutional investors active in corporate governance grew substantially. Also, in February 2023, the Spanish Securities and Exchange Commission or CNMV approved the Code of Good Practice for Investors which could be positive in terms of encouraging domestic institutional investors to vote in the 2024 proxy season.

Sustainability has taken on a central role in the management of listed companies’  business activities and has made an impact on these companies’ governance systems. Regarding the new regulation on the sustainability report that will affect these companies from 2024, Juan Aguayo, partner at Cuatrecasas specializing in corporate M&A said: “The collection, management and control of the data in the sustainability report require changes in the governance of companies, which must implement policies and procedures similar to those for financial information.”

Therefore, companies must review their systems for managing the impact on human rights and on the environment in view of the future regulations on due diligence for companies in relation to sustainability, currently in the negotiation phase between the EU Commission, the European Parliament and the Council of the European Union. In the case of supply chains, rather than simply seeking specific contractual solutions with suppliers and distributors, companies must assess their production and distribution system and management.

In general, support for listed Spanish companies in relation to remuneration has grown as a result of an improvement in their remuneration models. Georgeson states that the proposals related to the board’s remuneration were the most penalized in Ibex-35 company shareholder meetings in 2023. As in previous years, the support for these types of proposals was greater in Top 40 companies. This is explained by these companies’ different capital structure, where it is more usual for there to be majority shareholders that back these proposals. 

The guide includes recommendations to help companies to align their remuneration practices with market demands and thus increase support at the shareholders meeting: hiring independent external advisors, carrying out suitable benchmark comparisons, providing better explanations of the remuneration mix and variable payments, incorporating ESG metrics, aligning the long-term incentives with market expectations, reviewing the clauses of the executive directors’ contracts and limiting the excessive discretion of the remuneration committee which can lead to bonus payments.

In 2023, the trend continued of issuing a “protest vote” in the appointment or re-election of directors—particularly, regarding the members of the appointment and remuneration committees—when the company did not meet the demands of the institutional investors and of the proxy advisors after high dissent at the 2022 shareholders meeting. “Companies that received dissent of over 20% for an item on the agenda of the 2023 ordinary shareholders meeting are advised to establish a specific action plan to reduce dissent levels and avoid penalizing the directors in the voting” said Carlos Saez Gallego, country head at Georgeson in Spain.

With regard to the structure of the board of directors, the key aspects for institutional investors and proxy advisors are still traditional matters of good corporate governance, with an ever more demanding approach to independence, responsibility and diversity.

The most independent boards of directors have: (a) separate positions of chair and CEO; (b) an independent chair; (c) a lead independent director, including when it is not necessary by law because the chair has a non-executive role; and (d) complete independence in the key areas of auditing, appointments and compensation.

In July 2023, over half of the chairs of Ibex-35 companies were executive directors (53%) and in 8 of those companies, the chair was also the CEO.

 Only 15% of the chairs of Ibex-35 companies were independent directors. In the Top 40 companies—as revealed in previous years—the number of companies with a joint position of chair and CEO totals 13, more than in the Ibex-35 companies.

Institutional investors and proxy advisors are ever more demanding about the diversity of board composition—understood in the widest sense of the term—to include diversity of gender, ethnicity, range of knowledge and experience, age and geographical environment. 

The guide mentions the work carried out by Cuatrecasas for the fifth edition of the Manuel Olivencia Award for Good Corporate Governance, highlighting the designing and dissemination of a competency matrix as good corporate governance practices. 

Lastly, although in the last proxy season, there was certain flexibility on the market when assessing the follow up of recommendation 105 of the Code of Good Corporate Governance (presence of at least 40% women on the board), it is hoped that both institutional investors and proxy advisors will be more demanding in 2024.