Shareholder activism during 2023 AGM Season provides key clues for what to expect in 2024

2023 was an eventful year for shareholder activism in Australia and contained some clues about what may unfold during this year’s main AGM season.

Almost double the strikes against executive remuneration

One of the most notable aspects of shareholder activism in 2023 was an almost doubling of ‘strikes’ against ASX 300 companies’ remuneration reports.

41 companies experienced strikes in 2023, compared to 21 companies in 2022.

There was also an increase in the severity of strikes. In 2023, the five highest proportional shareholder votes recorded against companies’ remuneration reports ranged from 62.7% to 83.1% compared to 41.1% to 55.8% for the five highest votes against in 2022.

We observed several key drivers for the increases in the number and severity of strikes. A subdued economic environment and cost-of-living pressures contributed to heightened shareholder sensitivity to executive pay. Asset owners were also more sensitive to their internal stakeholders’ concerns.

In addition, we saw investor concerns about issues not directly concerning remuneration, such as company-specific reputational and risk management issues. Other concerns included those that had escalated from previous years, typically where companies had updated their remuneration plans to respond to investor feedback, but investors still felt firms had not taken sufficient action.

Greater focus on director accountability

Another significant trend in 2023, gleaned from votes against board-endorsed director elections or re-elections, was an increased focus on individual board director accountability.

There were 119 board-endorsed candidates who received more than 10% shareholder opposition in 2023 across the ASX300, compared to 82 in 2022 and 65 in 2021.

Factors leading to shareholders voting against board elections or re-elections included directors being held accountable for reputational crises at companies or for their firms’ governance failings on topics such as diversity, independence, tenure and over‑boarding.

There was also a trend of activist NGOs targeting specific directors to take responsibility for perceived company failings, with such actions increasingly gaining institutional investor support. As a result, we anticipate more of this kind of activity.

Fewer climate proposals

There were fewer climate proposals voted on at Australian companies in 2023, including those from both management and shareholders.

Key reasons for this decline include:

• The global focus on the world’s largest companies reporting on their climate obligations, or ‘Say on Climate’ (SoC), has coalesced around triennial reporting commitments, reducing pressure on company AGMs during non-voting years. There were three SoC proposals in 2023 versus eight in 2022.
• The focus on climate disclosures shifting from shareholders making company-specific demands to the Australian government introducing market-wide mandatory climate disclosures. These new Australian Sustainability Reporting Standards (ASRS) will start from 2025. We will need to wait to see how this new threshold, created to align with the new global IFRS/ISSB S2 Standard, will affect activism on climate issues.
• Non-governmental activists ACCR and Market Forces, while actively advocating on ASX-listed companies, are shifting their focus to ‘downstream’ energy and industrial companies, particularly in Japan.

There is still plenty of climate activism through mechanisms other than voting, for example via engagement, policy advocacy and protests, as well as, in some cases, physical AGM disruption.

Other issues in brief

Cyber risks

High-profile cyber security breaches have heightened public and regulators’ scrutiny of how companies manage and strive to prevent such issues.

We expect forthcoming reviews by the Australian Securities and Investment Commission (ASIC) and the Office of the Australian Information Commission (OAIC) as well as the Federal Government’s amendments to the Privacy Act, to further tighten companies’ supervision of such incidents, especially those in consumer-facing industries.

As a result, we expect the spotlight to fall squarely on company boards to ensure that suitable governance, risk management and disclosure arrangements are in place. A key challenge for boards will be how to balance disclosing information to the relevant authorities against the need to protect a company’s information security structures and processes.

Non-financial metrics in executive remuneration

2023 was the first year of a new standard from the Australian Prudential Regulation Authority (APRA) that requires companies to include ‘non-financial’ measures in their executive remuneration plans.

The standard (Prudential Standard CPS 511 Remuneration) is specific to the financial sector and led to many companies needing to change their executive remuneration plans’ structures and measurement. Investors and proxy advisors responded in diverse ways.

We anticipate shareholders will increasingly expect companies in other sectors to include non‑financial measures, for example decarbonisation targets in Long Term Incentive (LTI) awards.

Boards must also balance the need to include non-financial measures in remuneration with investors’ expectations that companies continue to deliver strong, absolute, and relative financial performance before such LTI vests.

Evolving role of Big Super

Australia’s superannuation industry has an enviable track record for growth and innovation, and also dominates the country’s financial markets. A few recent transactions have highlighted the significant role that large super funds, answerable to their members and effectively ‘stewards’ of member capital, play in financial markets.

Companies need to understand how to navigate the ‘asset owner’ ecosystem, and, particularly, who has voting rights at AGMs. Some companies will need to amend their previous outlook, which was perhaps more driven by asset managers and ‘sell side’ intermediaries.

Global ESG/Activism Trends

Australia is broadly aligned with global trends in its coming ISSB-aligned disclosure regime, however:

• Europe’s Corporate Sustainability Reporting Directive (CSRD) focuses on ‘double materiality’, or how business outcomes impact a specific company, society and the environment. This directive’s scope and detailed nature can present a challenge for Australian companies with European operations.
• While some US investors continue to experience an anti-ESG backlash, corporate activism remains strong in the country. By contrast, investors’ engagement with ESG topics in Australia has centred typically on how firms should provide accurate ESG data to enable them to best meet their obligations and provide shareholder value.
• There is increasing investor focus on ‘universal ownership’ and ‘systemic stewardship’. This involves investors assessing individual companies in the overall context of how the firm fits into their diversified portfolios, rather than on the merits of an individual company in isolation. This does, however, have the potential to disrupt traditional views of what constitutes shareholder value.

Georgeson encourages companies to engage with shareholders year-round to proactively identify and address any investor concerns outside of an AGM. Such ongoing engagement with shareholders can also enable companies to benefit from investors’ ideas more broadly.