Companies garnered strong support on key voting items this proxy season, but opposition to the reelection of some board and committee leaders, along with increasing support for governance-focused shareholder proposals, show that investors are willing to hold directors to account and seek the tools to do so. Companies also faced more challenges this year related to a changing activism environment and emerging topics of focus like artificial intelligence. Sustainability shareholder proposals drew selective support amid more robust corporate sustainability reporting. Jamie Smith, investor outreach and corporate governance director for EY Americas Center for Board Matters, digs deep into this proxy season.
In some ways, the 2024 proxy season was a banner year for companies. Support increased for directors and executive compensation programs despite growing investor scrutiny and a busier year for activism. Still, challenges remain for companies to keep that support secure.
Changes in investor voting approaches, growing political and regulatory uncertainty and a challenging economic climate continue to bring complexity to the proxy landscape and underscore the importance of strategic investor communications.
The conclusion of the proxy season is an opportune time for boards and management teams to take stock of voting outcomes and learn and adapt. All vote results and shareholder proposal data for 2024 discussed here are based on a universe of S&P 1500 companies with meetings through June 18. AI governance disclosure data is based on a review of 80 Fortune 100 companies whose 2024 proxy statements and 10-K filings were available as of May 31.
Support for directors increased, but directors in chair roles are under more scrutiny
Various developments — from the adoption of universal proxy rules to a changing shareholder proposal landscape — are driving investors to focus on director accountability and individual director qualifications and performance. Despite the increased scrutiny, support for directors went up this year. In fact, S&P 500 directors averaged 96.3% support in 2024, up from 95.8% in 2023. Similarly, S&P 1500 directors averaged 96% support this year, compared with 95.4% in 2023.
However, directors holding board and committee leadership positions fared worse than their peers. For example, independent board leaders (i.e., independent board chairs or lead directors) and compensation committee chairs of S&P 500 companies averaged 94.3% and 94.4% support, respectively, vs. 96.3% support for directors overall.
But it was the nominating and governance committee chairs who drew the least support in an environment where we see a more nuanced approach to director voting. These directors, whose responsibilities relate to board composition, governance practices and (for an increasing number) oversight of sustainability, averaged 92.4% support at S&P 500 companies, and a third of directors who received more than 15% opposition votes are nominating and governance committee chairs.
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Read moreDetailsInvestor activism continued to grow and evolve
We observed more activism this year, with the number of campaigns advancing by 2.4% from previous years. Prominent arenas for activism included the consumer sector, financials, and technology, media and telecommunications.
Themes also emerged from that landscape of which boards should be aware. For instance, in today’s high interest rate environment, scrutiny of past acquisitions intensified and activist investors are questioning management’s past capital allocation choices. This scrutiny is expected to continue as companies deal with elevated interest rates, above-average inflation and the economic slowdown.
Most companies have addressed structural governance issues. As such, the investor corporate governance focus has shifted to board quality and performance.
We also noted that when there is a lack of industry knowledge or experience among board members and succession planning is lacking, those areas can become focus points in prominent campaigns. Universal proxy cards also are driving changes to activism campaigns. These include director nominations by multiple activists and single-issue environmental and social-focused campaigns.
A recalibrated shareholder proposal landscape emerged
As companies prepare to comply with sustainability reporting mandates in numerous jurisdictions, the gaps in the material sustainability disclosures investors seek are closing. This development, along with a renewed focus on board accountability, is driving changes to the shareholder proposal landscape.
For instance, support for governance proposals jumped from 31% in 2023 to 42% this year. Two-thirds of the proposals exceeded 30% support. That is a level at which most boards will take notice.
Proposals leading the pack in support of governance would enable elimination of supermajority voting requirements (averaged 72% support), classified boards (60%) and unequal voting rights (33%). They also recommended allowing shareholders to call a special meeting (43%) and act by written consent (37%). Others focused on the appointment of an independent board chair (31%).
Support for environmental and social-focused proposals stabilized after a two-year decline. Average support for sustainability-focused proposals ticked down to 19% average support from 21% last year; support peaked at 33% in 2021.
Support for the top three environmental and social shareholder proposal topics in recent years declined. Support for climate risk proposals fell from an average of 49% in 2021 to 25% in 2024; and support for corporate political responsibility proposals fell from 43% in 2021 to 24% this year. Additionally support for diversity, equity and inclusion-focused proposals declined from 40% on average in 2021 to 20% this year.
While some observers may characterize these trends as evidence of a backlash against ESG, we see a recalibrated shareholder proposal landscape, marked by more robust corporate sustainability disclosures and narrower, more prescriptive shareholder proposals. In this new landscape, investors are perceiving many proposals as either redundant or encroaching on management’s territory. Notably, although the number of anti-ESG proposals increased this year, support for those proposals continued to languish at just 2% on average.
Companies gained support for say-on-pay
While bucking expectations in some ways, companies managed to increase their say-on-pay support levels this year, continuing a new upward trend that emerged in 2023 after years of decline.
Average support rose to 90% for S&P 500 say-on-pay votes, from 89% in 2023 and a low of 87% in 2022. Looking more broadly at the S&P 1500, just 12 say-on-pay votes failed vs. 25 last year. Most companies seem to have learned and adjusted to investors’ expectations regarding disclosure and shareholder responsiveness and what pay practices investors consider to be most problematic.
However, investors called out four pay practices they planned to watch closely this year:
- Performance stock units, which investors said are overly complex, associated with underperformance, lack rigor and artificially inflated pay
- One-time special awards, which investors said call into question the viability of the pay plan
- Pay magnitude and equity, which investors said they grapple with, particularly when outsized CEO pay is paired with a broader workforce with very low pay
- ESG pay metrics, which some investors see as a sign that ESG goals are taken seriously, and others approach with scrutiny and skepticism
Companies are starting to address investor interest in AI governance
As companies accelerate their transformation initiatives, responsible AI is emerging as a new investor engagement priority. Almost 20% of investors told the EY team they would prioritize responsible AI in their engagements with companies in 2024, and far more said they expected AI to be a subject of discussion with their portfolio companies. Additionally, investors most often cited AI governance and the board’s role in overseeing AI risks and opportunities as an area of interest.
Companies are listening, and they are starting to heed the call for more AI governance transparency. In fact, EY analysis of AI-related disclosures in proxy statements and Form 10-K filings of Fortune 100 companies found that nearly 70% of companies addressed AI in their 10-K risk factor disclosures, up from about 20% last year, and 14% focused on AI as a standalone risk factor. We also found that 26% of companies cited AI in at least one director biography or in their board skills matrix.
In their proxy statements, 16% cited AI in the board risk oversight section of their proxy statements. More than 10% disclosed that a board committee has some level of AI oversight responsibilities (most often the audit committee). Likewise, 11% also disclosed that they use AI frameworks, principles or guidelines aimed at promoting responsible AI. Others noted that AI has been a recent subject of board education or training.
What companies can do to adapt and learn
Monitor and address rising opposition to individual directors to mitigate activism risk and avoid being caught off-guard by investor discontent. Recognize that independent board leaders and key committee chairs are more vulnerable than their peers to ongoing shifts in investor voting practices.
Use those insights to get ahead of the activist threat by thinking like an activist. Challenge management to optimize or exit business lines and evaluate board composition through the lens of the company’s forward-looking strategy and risk profile.
Think of the proxy statement as a strategic communication channel through which your organization can make a vigorous case that the board is fit for purpose. Connect the dots for investors. Include the vital skills and experience each director brings to the board’s oversight responsibilities.
While defending the company against shareholder proposals, address the factors that investors are considering. Include whether the proposals are financially material to the business and their feasibility, as well as the associated costs and potential risks to the company if the proposals are implemented.
In doing so, be sure to talk about management’s progress in addressing the proposal’s underlying concern. The proxy statement can provide a foundation for robust engagement with top shareholders and respond to shareholder feedback. Companies will benefit by using it that way.
Jamie Smith is investor outreach and corporate governance director for EY Americas Center for Board Matters. Jamie helps boards and committee members in their oversight roles by providing insights to directors tackling complex boardroom issues. She also assists institutional investors and other members of the governance community with emerging trends and long-term developments in corporate governance. Jamie has a deep background in research related to corporate governance. She has focused on corporate governance since 2003 and has presented on corporate governance issues to corporate boards and a variety of companies and organizations. 
