Proxy Wars: Climate, Diversity Among Top Considerations for Institutional Investors


The securities professionals at Michelman & Robinson, LLP have identified certain policy items of importance to institutional shareholders going into 2022. These policies, flashing brightly on investor radar screens as they consider proxy statements soliciting votes, are set forth below.

In our estimation, public companies—those with significant blocks of institutional shareholders—that fail to pay heed to the guidelines discussed in this post may be unable to secure the proxy votes they need during proxy season and otherwise. As such, it is recommended that annual reports issued and the proxy statements filed by listed companies cover all of the following.

Climate-Related Risks

Institutional investors, companies and other market participants are particularly concerned about climate change and board oversight of climate-related risks and transition plans. Indeed, stakeholders are increasingly applying non-financial, ESG (environmental, social and governance) factors to identify growth opportunities, among other things.

Because investors are integrating climate considerations in their investment, engagement and voting processes, public companies—especially those that are significantly contributing to climate change—are encouraged to introduce related board accountability policies.

How important is it for board members to implement climate-friendly standards? So much so that Institutional Shareholder Services (ISS) is recommending votes against responsible incumbent directors in cases where the public company in question is not considered to have adequate disclosures in place or quantitative greenhouse gas (GHG) emission reduction targets.

Say on Climate (SoC) Plans

With climate in mind, public companies are expected to disclose climate-related risks, targets and transition plans on an annual basis in line with the reporting framework created by the Task Force on Climate-related Financial Disclosures (TCFD). By allowing shareholders to vote on these disclosures (including disclosure of operational and supply chain GHG emissions and the company’s commitment to be “net zero” for such emissions), entities can determine if they are meeting shareholder expectations on climate-related issues and institutional investors are able to make informed decisions.

For its part and when looking at management proposals asking shareholders to approve a given company’s climate action plan, ISS weighs the “completeness and rigor of the plan.” When it comes to shareholder proposals, ISS also takes into account the company’s actual GHG emissions performance; the existence of recent significant violations, fines, litigation or other GHG controversies; and whether the proposal is unduly burdensome or prescriptive.

Board Diversity

Last year, the SEC approved Nasdaq’s Board Diversity Rule, which aims to diversify the boards of directors for Nasdaq-listed companies. By way of the Rule, Nasdaq-listed companies will be required to have at least two diverse directors, one who self-identifies as female and one who self-identifies as an underrepresented minority (read: Black or African American; Hispanic or Latinx; Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander; or two or more races or ethnicities) or LGTBQ+.

This is a hot-button issues for many institutional shareholders, which underscores the need for public companies to institute related policies and guidelines. Note that board diversity requirements are not exclusively the purview of Nasdaq and the SEC. Similar requirements have been enacted in California, Washington, New York, Maryland, Illinois and Colorado, and several other jurisdictions are also considering comparable mandatory gender diversity legislation.

ISS has taken a stand here too, recommending that shareholders vote against the chair of the nominating committee (or other directors on a case-by-case basis) at companies in the Russell 3000 or S&P 1500 if there are no women on their boards. In addition, ISS recommends an against vote or withholding votes for the chair of such a nominating committee in the absence of racially or ethnically diverse board members.

Unequal Voting Rights

Public companies with unequal voting rights (read: provisions limiting the voting rights of some shareholders and expanding those of others) are increasingly frowned upon. Oftentimes such unequal voting is established prior to a company going public in order to protect the ability of founders to maintain control. A prime example is Facebook and the inability of shareholders to influence its polices due to Mark Zuckerberg’s 50%+ voting control.

ISS is recommending (with certain exceptions) that beginning in 2023 shareholders vote against the boards of directors (other than new nominees) at companies maintaining unequal voting rights structures. For newly public companies, ISS recommends voting against board members or withholding from the entire board (with the exception of new nominees) if, prior to the company’s public offering, an unequal, multi-class voting structure was adopted (especially one that does not include a sunset provision). Where such a structure was implemented and a sunset provision applies, the company at issue should disclose the rationale for its adoption and the reasoning behind the timing of the sunset provision (such as needing to maintain control in order to effectuate a series of planned, post-IPO acquisitions and the need to assure they are approved). If such a sunset provision allows the unequal voting structure to continue beyond seven years, that structure will be considered unreasonable. Consequently, entities would be wise to alter any contradictory policies accordingly.

A Final Word

Of course, M&R’s securities pros, including Megan Penick at mpenick@mrllp.com and Stephen Weiss at sweiss@mrllp.com, are available should you have any questions or need guidance regarding any the foregoing policies or recommendations coming from ISS.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.