Governance Watch - November 2020: The rise of shareholder dissent

The 2020 annual general meeting (AGM) season has taken place in unprecedented times, with the coronavirus pandemic causing severe economic and social costs globally. The world and business landscape have changed, and as a result, boards and investors are facing new and challenging decisions.

Within this context, Minerva Analytics' 2020 UK Voting Review found that the average overall dissent across all resolutions considered at shareholder meetings of the UK's largest 350 companies was 3.13% in 2020 (January to August). This is above both the 2.93% level for the whole of 2019 and currently stands at its highest level in seven years.

The chart above shows the number of companies and the number of resolutions that received 20% or more dissent since 2014 - when shareholders were given a binding vote on remuneration policy. It shows that a greater number of resolutions have received high dissent in 2020 compared to 2019. The data also suggests dissent has been more concentrated, indicating that shareholders are "picking their battles", which has resulted in a smaller number of companies receiving high dissent but a larger number of resolutions with high dissent.

Of the 63 companies receiving high dissent on at least one resolution this year, 46% were repeat offenders, i.e. the company also received high dissent in 2019. This would seem to suggest a breakdown in communication: either companies are not listening to feedback, or shareholders are not explaining effectively - or possibly a mixture of both. It does not help either shareholders or boards when most companies have a 31 December year end and hold their AGMs within a narrow sixweek window. The engagement process this year will have also been impacted by the coronavirus pandemic.

The number of defeated management-proposed resolutions and successful shareholder proposals have also increased. In 2020, 21 resolutions have been voted down by shareholders compared to five in the whole of 2019, and 12 shareholder proposals have been successful compared to only one in 2019. This increase has been impacted by the ongoing shareholder fight over the future direction of Petropavlovsk plc and the composition of its board. All 12 successful shareholder proposals and nine of the defeated managementproposed resolutions occurred at Petropavlovsk.

The report found that shareholder dissent has increased this year. This could be expected given the increased scrutiny boards find themselves under during this time of crisis and the evolving public expectations on the roles and responsibilities of businesses.

Governance practices and, in particular, executive remuneration and the treatment of stakeholders are under even closer scrutiny from shareholders, employees, regulators and governments.

Thomas Bolger is stewardship team leader at Manifest-Minerva

Annual General Meetings in November

Source: Manifest-Minerva