CGI Glass Lewis’ Season Review for 2023

On the 27th of February, Guerdon Associates and CGI Glass Lewis hosted their 18th annual Remuneration and Governance Forum, during which Glass Lewis provided their seasonal review of proxy voting trends for 2023. In this paper the highlights and key takeaways of Glass Lewis’s review are summarised below.

A strike occurs when at least 25% of shareholders vote against the remuneration report proposed at the annual general meeting. This year has seen a particularly vexatious season in Australia, with a record-breaking number of strikes against remuneration report proposals.

In fact, 2023 has seen the highest tally of strikes since the two-strikes rule was introduced in 2011, indicating the highest level of shareholder opposition in over a decade. Among ASX 300 companies, 41 strikes were observed in 2023, compared to 22 strikes in 2022, reflecting a nearly two-fold increase (Guerdon Associates’ previous article discussing the 2022 season review by CGI Glass Lewis can be found HERE).

The Forum opened with Glass Lewis’ discussion of this remarkable shareholder voting observation, and the potential contributing factors behind the surge in protest votes. Opposition from shareholders generally reflects dissatisfaction with company performance, as well as concerns around remuneration structure.

Glass Lewis speculated that the protests may have stemmed from temporary factors (e.g., cyclical economic challenges, scandals) and/or a longer-term shift in voting patterns reflecting greater and growing intolerance for poor goverance or remuneration. Various potential contributing factors were identified, including poor shareholder returns and other performance issues, short-term remuneration structures lacking “skin-in-the-game”, bonuses not reflecting workplace safety issues, reputational issues, and shareholder activism.

Prominent reputational damage and license to operate issues in 2023 adversely influenced headline risk for the companies involved. Some examples include Qantas’ underpayment of its employees prompting an inquiry by the ACCC, PwC’s tax scandal, and the Optus outage. Various Qantas service and customer issues are the likely primary reasons they received an extraordinarily high strike this year, with protests from over 65% of shareholders. Four companies received over 65% protest votes this year, compared to no companies with over 65% protest votes in 2022, further highlighting the contrast with last year’s voting patterns.

Shareholder activism also surged in 2023, with numerous prominent asset managers and pension funds targeting ASX 300 companies. Some outcomes were consequential, bringing about board renewals, revised remuneration structures, and resignations. Glass Lewis identified some of these cases: investment firm Sandon Capital caused an executive stepdown at Magellan Financial Group due to dissatisfaction with remuneration structures and performance; Tanarra Capital targeted healthcare firm Healius due to concerns with limited skin-in-the-game; and Bell Rock lobbied Whitehaven Coal to abandon corporate expansion plans, urging them to return more capital to shareholders.

Director election protest votes followed a similar, though less pronounced,  trend as those against remuneration reports. This may be explained by the fact that shareholders are generally more inclined to voice dissent on say-on-pay proposals, rather than target specific directors. Glass Lewis also expressed concerns about incompleteness of data pertaining to director election votes. This year saw 25 protest votes (over 25%) against director elections among the ASX 300, relative to only 12 in 2022, once again indicating a roughly two-fold increase. Shareholders expressed concerns regarding director overcommitment and lack of diversity, in line with considerations made historically.

Overall, the changes observed in voting outcomes for remuneration report proposals are more anomalous than those observed for director elections. Glass Lewis noted that they historically tended to be more punitive in remuneration report votes relative to the market. However, this year saw a reversal of the trend, with the record-high 41 strikes exceeding the 39 oppositional recommendations made by Glass Lewis in the same season.

In contrast, the frequency of environmental and social (E&S) proposals were less than prior. Only a total of 13 E&S proposals have been submitted across the ASX 300, with only 7 corresponding companies being involved. This is down from 32 proposals (13 companies) last year, and 42 proposals (19 companies) in 2021, indicating a consistent decline over the past two years. Of the E&S votes, those on Say-on-Climate (SoC) where down from 8 votes in 2022 to 3 votes this year.

These voting trends indicate growing shareholder adversity towards widespread poor company performance, reputational issues, and excessive short-term focus (or “short-termism”), and a shift away from environmental concerns.

See the Glass Lewis presentation HERE.

The subject of short-termism in executive pay received its own panel discussion in the Forum, for which our relevant article can be found HERE. Our article covering the panel on voluntary and advisory resolutions can be found HERE.

© Guerdon Associates 2024
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