WOKE WEDNESDAY: Blackrock votes with management (gasp), Jim McRitchie wants more than 10 seconds to vote, Hispanic directors lose, and IT'S TIME TO RECLAIM THE ESG ACRONYM
Live from the Blackrock voter inaction ballroom, it’s the ESG Industry’s ONLY weekly woke data podcast, featuring AnalystHole-man Matt Moscardi! In today’s Eight Seven Giga called August 23, 2023: old-fashioned Environmental, Social, and Corporate Governance headlines (notice I didn’t say ESG), and a rant from our analyst hole
Our show today is being sponsored by ESGauge, your ESG data solutions provider
DAMION1
BlackRock voted against a record 91% of all shareholder proposals in 2023 proxy season
BlackRock Inc. voted against a record 91% of all shareholder proposals – and against 93% of those focused on environmental and social issues – during the 2023 proxy year, its latest report shows.
That 9% of proposals which BlackRock supported this year is down sharply from 2022, when BlackRock's investment stewardship team (BIS) supported 24% of such proposals, and from 2021, when it supported 43%.
In their annual global voting spotlight report published Wednesday, BlackRock's investment stewardship team – which makes voting decisions on both management and shareholder proposals on behalf of BlackRock's clients – attributed its large number of 'no' votes this year to several factors, including a huge influx of shareholder proposals.
The vast majority were deemed to be "poor quality" by BIS, either because they were "lacking economic merit," were "overly prescriptive" and "sought to micromanage a company's strategy," or were simply redundant, asking a company to do something it had already done, the report said.
BlackRock's support for management proposals, however – which accounted for more than 99% of the roughly 172,000 proposals voted on by BIS – remained high at 88%.
BlackRock's trend of voting against shareholder proposals is largely in line with the wider market – median shareholder support for environmental and social proposals in the U.S. fell sharply from 25% in 2022 to just 15% in the 2023 proxy year.
But the firm's latest report may indicate reluctance to be connected to so-called "ESG investing".
FT:
The world’s largest money manager voted in favour of just 26 such proposals globally at companies’ annual meetings in the 12 months to June, equivalent to roughly 7 per cent of the total.
That represented a significant decline from last year, when it backed 22 per cent globally, and the 2021 proxy season, when it voted in favour of 47 per cent.
However, BlackRock’s pullback also coincides with a jump in the number of ESG shareholder proposals made possible by a change in the Securities and Exchange Commission’s policies, which mean it is harder for companies to block them.
This year, a record 340 ESG proposals have already been voted on in the US, up from 300 in all of 2022, according to Institutional Shareholder Services, the proxy voting group.
In a report on its voting record published on Wednesday, BlackRock said its support had fallen “because so many shareholder proposals were overreaching, lacking economic merit, or simply redundant”.
However, while rival State Street also refused to back as many proposals, the decline was not as pronounced. The Boston-based asset manager, which publishes its voting record using a different timeline, backed 32 per cent of ESG resolutions in the first half of this year, down from 44 per cent in the same period of 2022 and 49 per cent in 2021.
DeSantis Disney Appointee Resigns After Breaking Florida State Law
A top Disney ally of Gov. Ron DeSantis resigns after it was revealed he was breaking Florida state law.
In a new update, Glen Gilzean resigns as chairman of Florida’s ethic commission after concerns grew surrounding his other position with the Central Florida Tourism Oversight District (CFTOD). Florida law forbids public figures to serve on the panel, meaning Gilzean had to resign from one position or the other.
Gilzean resigned Tuesday and will keep working as chief of Gov. Ron DeSantis‘ Disney district. Gilzean is paid $400,000 annually for this position.
Gilzean claimed she was unaware of a conflict of interest in his resignation letter until media reports started reporting of the story last week.
The G20 pledged to end fossil fuel subsidies in 2021—and then quadrupled them in 2022
The G20 countries aren’t walking the walk to match their talk about reducing fossil fuel subsidies. Quite the opposite, in fact.
The volume of public money flowing into coal, oil, and gas in the world’s 20 biggest economies hit a record $1.4 trillion in 2022, a new report by International Institute for Sustainable Development (IISD) revealed. Of this, a trillion went towards all sorts of subsidies—mostly for consumers.
The bulk of the G20's subsidies were aimed at consumers in a bid to contain the fallout from Russia’s invasion of Ukraine
“The 2022 energy price crisis, brought about by Russia’s invasion of Ukraine, has catapulted public financial support for fossil fuels to new levels,” according to IISD, a Canada-based independent think thank. To protect consumers, governments across the world took to fixing end-user tariffs or capping fuel or electricity price increases.
Bargain stores Dollar Tree and Family Dollar given two years to fix ‘entirely preventable’ violations and hazards compromising worker safety
Dollar Tree and Family Dollar also face hefty fines for future violations.
U.S. regulators on Wednesday announced a settlement with the company that runs Dollar Tree and Family Dollar aimed at improving worker safety at thousands of the bargain stores across the country.
Labor Department officials cited hazards at the stores including blocked exits, unsafe storage of materials, and improper access to fire extinguishers and electrical panels.
Under the agreement, the chains operated by Dollar Tree Inc. are required to find the “root causes” of violations that the Occupational Safety and Health Administration has repeatedly cited at multiple stores and fix them within two years, the department said.
Assistant Labor Secretary Doug Parker noted that OSHA has issued 403 violations at Dollar Tree and Family Dollar stores since 2017, resulting in more than $13.1 million in fines to date. The company “made some significant improvement” in worker safety following a 2015 settlement that expired in 2018 but continued violations show more work needs to be done, Parker said.
“These are entirely preventable violations and hazards. And it’s the employer’s … responsibility, to keep these workers safe,” Parker told reporters. “These improvements will not happen overnight, but this agreement will create a pathway for significant investment by the company to put in place controls that we believe will make workers safer.”
The agreement covers all Family Dollar and Dollar General stores in OSHA’s federal jurisdiction — totaling 10,000 locations nationwide, according to Solicitor of Labor Seema Nanda. It also calls for the company to maintain a 24-hour hotline for safety complaints and anti-retaliation protections for workers, Nanda added.
Corporate governance experts await SEC ruling on AGM voting windows proposal
Resolution asks firm to initiate changes to governance documents or proxy statements to give shareholders 'reasonable time' to vote after final proposal presented.
An attempt by Broadridge Financial Solutions to strike down a shareholder proposal on reasonable voting windows at AGMs could have profound implications for corporate governance, experts have told Responsible Investor.
The proposal, filed in May by corporate governance expert and seasoned filer James McRitchie, asked Broadridge Financial Solutions to initiate appropriate changes to governance documents or proxy statements to give shareholders “reasonable time” to vote on resolutions after the final proposal is presented at its annual meeting.
McRitchie was prompted to file after noting that some firms were closing the polls within a few seconds of shareholder proponents finishing their presentations at AGMs.
According to the filing: “A failure to provide investors adequate time to vote could negatively affect investor perception of the company and its stock value since fair corporate suffrage is a fundamental right of shareholders.”
In response, Broadridge filed a “no-action” request with the Securities and Exchange Commission, asking the regulator to exclude the proposal. The firm argued that it fell foul of the SEC’s rule around ordinary business and vagueness.
No-action requests are a decades-old mechanism that companies can use to ask for reassurance that the SEC will not act if they omit a shareholder proposal from its proxy statement by appealing to rules that govern the process.
The powerful financial regulator has not yet opined on the arguments. If it sides with Broadridge, McRitchie believes it could set a precedent that hits at a “fundamental right in corporate governance” – namely, the ability for a shareholder to make an informed voting decision on an agenda item.
Speaking to RI, McRitchie said: “It’s very important to be able to vote after you hear the evidence. When proponents present their proposals at the AGM they are making their last pitch to investors.
“Sometimes they will just reiterate arguments they already made in the proposal, but often they will embellish with additional information from the news or by rebutting the arguments against the proposal included in the board’s opposition statement.”
In his filing, he noted that the Interfaith Center on Corporate Responsibility (ICCR) collected data from 31 annual company meetings attended by its members in 2022. Their survey showed 10 out of 31 companies allowed 0-10 seconds to vote at annual meetings after proposals were presented. Five allowed up to 30 seconds, six allowed 50-60 seconds, and 10 allowed two minutes or more.
“It’s very important to be able to vote after you hear the evidence. When proponents present their proposals at the AGM they are making their last pitch to investors”
Asked what would constitute an optimum time, McRitchie said he is not qualified to judge. However, he pointed to Carl Hagberg’s suggestion that after all proposals have been introduced, companies should announce that polls will remain open for 10 more minutes during a general discussion or question-and-answer period “to allow voters who have not yet voted or who wish to change their votes online to do so”.
New U.S. Buyback Tax Hits Companies With $3.5 Billion Burden
Companies are disclosing the impacts of the 1% tax on share repurchases
A new 1% tax on stock buybacks is starting to increase companies’ anticipated tax burdens, to the tune of over $3.5 billion in the first half of the year among the largest U.S. public companies.
Businesses in recent weeks have disclosed what they are expecting their tax bills for share repurchases to be for the first half of the year, offering a first glimpse at the levy’s midyear impact on their financials. Booking Holdings estimates a tax liability of $47 million for the six months ended June 30, according to a regulatory filing. PayPal anticipates a $24 million bill tied to buybacks for that period, while MetLife expects a tax hit of $13 million.
The tax, which went into effect Jan. 1, is set to cost S&P 500 companies $1.6 billion in the second quarter, according to preliminary data from S&P Dow Jones Indices, a unit of ratings firm S&P Global. That figure, which is down from around $1.98 billion in the first three months of the year, represents around 0.34% of the companies’ collective operating income for the second quarter, according to Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices.
Despite the higher tax obligations, companies are largely shrugging off the tax. From April through June, S&P 500 companies are expected to spend around $169 billion on stock buybacks, down about 20% from both the first quarter of this year and from a year ago, the preliminary S&P data show. Companies have pulled back some because of macroeconomic uncertainties, but the tax isn’t significantly deterring share repurchases among S&P 500 companies, according to Silverblatt.
“It’s an annoyance, a payment, but compared to earnings this quarter of about $458 billion, the $1.6 billion is not a lot,” he said.
At Liberty Energy, the tax is now folded into the math—added to the price of shares—when the Denver-based energy-services company is buying back stock, said finance chief Michael Stock. This means less capital is available for repurchases, he said.
“So it’s less shares you’ll buy back,” according to Stock. “But it doesn’t actually change the go, no-go decision, necessarily, unless you’re kind of on the borderline of the value at which you would buy back.”
Liberty Energy bought back around $134.7 million in shares through June and accrued an excise tax of $1.2 million for that same period, according to a regulatory filing. The company has around $240 million worth of remaining shares authorized for repurchase. Liberty Energy’s net income during the first half of the year was around $315 million.
At 1%, the tax isn’t altering companies’ buyback plans, but lifting the levy could prompt executives to change their strategies. President Biden in February proposed quadrupling the rate to encourage long-term investments by companies instead of rewarding shareholders and executives. A group of Senate Democrats followed up later in February with a bill similarly seeking to increase the tax on certain buybacks from 1% to 4%, a proposed hike that faces hurdles to passage in the divided Congress.
The expectation is that the tax will go up eventually, said Silverblatt, though he doesn’t anticipate that it will reach as high as 4%. A more muted increase, such as to around 2%, could gain the required backing in Congress, Silverblatt said, adding that companies would likely start to reassess their repurchase activity if the rate were lifted to around 2.5%.
Director Compensation: Increases Are Back Among the Largest US Companies
Median total board compensation increased 2.6% to $320K driven primarily by increases in equity grant value
Meeting fee prevalence continues to decline; only four companies now provide board meeting fees, down from eight last year
Additional compensation for the Lead Director role is now between 1.67x and 2.5x that provided to the Chairs of the Audit, Compensation and Nominating/Governance Committees, at median
As a multiple of total Board Compensation, total Board Chair pay was 1.65x that of a standard Board member, at median. The Non-Exec Chair role is less standardized than the Lead Director role.
More than 95% of companies studied provided additional compensation to committee Chairs to recognize additional time requirements, responsibilities and reputational risk.
2023 S&P 500 New Director and Diversity Snapshot
Women stay at 46% but underrepresented minorities fall from 46% to 36%
Specifically because new black directors fell from 26% to 15%
56% of all first-time directors are women
Overall: 24% of s&p500 directors are from underrepresented minorities compared to 43% of the general population whereas women are at 33/50
The state of diversity in global private markets: 2023 McKinsey
The industry now manages $11.7 trillion in assets, up from $8.0 trillion the previous year.
Given the current pace of progress, it will be several decades before the PE industry achieves gender parity at the principal and managing-director levels.
PE firms have almost achieved gender parity globally at the entry level. At the end of 2022, 48 percent of all entry-level roles in PE were held by women. However, women in PE are still underrepresented in leadership positions, with only 20 percent representation in managing-director roles
Disaggregating the data into investing, operating, and other noninvesting roles reveals that women hold only 33 percent of entry-level investing roles, compared with 44 percent of operating roles and 59 percent of noninvesting roles at that level.
Women are also underrepresented at the managing-director level (L2), with only 15 percent of managing-director-level investing roles
The share of C-suite roles held by women globally increased by 3.5 percentage points over the past year to 17 percent at the end of 2022
At the current rate of progress, reaching gender parity in investing roles at the managing-director level (L2) would take more than six decades.
At almost every level, women in investing roles are promoted at significantly lower rates than men. Globally, men in investing roles are about 50 percent more likely, on average, to be promoted than their female colleague
The largest gap affects promotions into the principal level (L3), with men 2.75 times more likely than women to be promoted.
The timelines to achieving gender parity vary by region. For instance, despite advances, Europe still faces significant challenges related to women’s representation at senior levels. At its current pace, Europe would require more than six decades to reach gender parity at senior levels.
66/32 Americas/21 Asia Pacific
Ethnic and racial minorities in PE face similar underrepresentation as women. At nearly every level, investing roles have lower ethnic and racial diversity than noninvesting and operating-partner roles.
Data from the United States and Canada shows that ethnic and racial minorities represent only 20 percent of managing-director-level investing professionals (Exhibit 6). For context, people who identify as ethnic and racial minorities account for 30 percent of the Canadian population and 41 percent of the US population
Britain's CEOs get 16% pay rise to 3.9 mln pounds even as workers struggle
The bosses of Britain's biggest companies saw their pay jump 16% in 2022, sending their average earnings to 118 times the median UK full-time worker's while employees struggled with soaring inflation, new research showed on Monday.
The median pay of a FTSE 100 CEO last year hit 3.91 million pounds ($5 million), the highest level since 2017 and 500,000 pounds up on 2021, according to the annual research from the High Pay Centre.
The ratio of the median CEO's pay to a median UK full-time worker, at 118, was up from 108 times in 2021 and 79 times in 2020, the think tank, which campaigns for fairer pay and a greater voice for workers on company boards, calculated.
"At a time when so many households are struggling with living costs, an economic model that prioritises a half a million pound pay rise for executives who are already multi-millionaires is surely going wrong somewhere," said High Pay Centre Director Luke Hildyard.
British CEO pay remains far lower than in the United States, however. A new study this month showed that S&P 500 chief executives made $16.7 million on average in 2022, 272 times the pay of their median workers, although that marked a decline on both measures over the prior year as CEO compensation fell with poor stock returns.
