2024 policy also recommends votes against nominating committees at boards without a 40% minimum ethnic diversity and 50% gender balance.
ESG-aligned investors have been advised to vote against company boards that seek to challenge shareholder resolutions through the courts, as part of As You Vote 2024 Proxy Vote Guidelines.
The new policy comes in reaction to ExxonMobil’s unusual move this year to sue shareholders for filing a climate-related resolution, bypassing the traditional US Securities and Exchange Commission’s (SEC) ‘no-action’ process for shelving shareholder resolutions.
Despite Arjuna Capital and Follow This having since dropped the shareholder proposal, which requested medium-term emissions reduction targets for Scopes 1-3 emissions, the oil and gas major intends to pursue the lawsuit.
Andrew Behar, CEO of shareholder advisory firm As You Sow, which publishes As You Vote along with Proxy Impact, told ESG Investor that Exxon’s move was an “extraordinary measure”.
“It can only be viewed as an attempt to intimidate shareholder proponents and suppress shareholder rights,” he said, adding that the move also challenged the authority of the SEC to make decisions on allowing proposals.
As You Vote guidelines were added to the Broadridge Proxy Edge platform for institutional investors in 2020. They are also available for individual investors through Iconik and for pass-through voting by holders of mutual funds and exchange-traded funds via Tumelo.
Behar said that university endowments use its proxy advice as part of engagement with students who wanted divestment from fossil fuels. “Sometimes it’s hard to adjust your portfolio rapidly,” he said. “So, endowments are saying to students: ‘While we work on this, we are at least going to align our shareholder voting with climate’.”
Diversity and pay focus
Other new policies released in 2024 by As You Vote include a recommendation to vote against board nominating committees unless the board has a 40% minimum racial and/or ethnic diversity and a 50% gender balance.
Behar said this was the first year in which there was sufficiently accurate data on the ethnic diversity of board directors to inform its voting policy. Previously, it declined to endorse initiatives that focused on judging the ethnicity of board members from photographs.
As You Vote has also taken a strong stand on executive compensation with recommendations to vote against CEO pay that is greater than the 75th percentile of company peers.
Unlike other CEO pay guidelines, As You Vote applies a 100:1 CEO-to-typical worker pay ratio guideline, which translates into voting against 80% of ‘Say on Pay’ ballot items. In 1978, the CEO-to-typical-worker pay ratio was 31:1 for major US firms, and by 2022 it had increased to 334:1. Over this same time, worker pay has basically been stagnant while CEO pay has increased by 1,209%.
“We recommend a vote against the compensation committee for any CEO making more in a year than the company’s typical worker would earn in a century,” said Michael Passoff, CEO of Proxy Impact.
“Increases in executive pay have far exceeded stock performance and worker pay. Pay disparity contributes to the destabilising effects of income inequality and distorts incentives, leading to a short-term focus rather than an emphasis on long-term, sustainable growth.”
Behar said As You Vote’s recommendations on pay were in stark contrast to other ESG-aligned proxy voting policies. In 2022 As You Vote recommended against approximately 80% of CEO pay packages with corresponding votes against the board compensation committee, while market-leading policies yielded broadly inverse outcomes.
“Our guidelines reflect concerns and priorities important for investors and asset managers,” he added.
