Continued dissent in remuneration and directors’ election votes may be an indication of what the main 2024 AGM season will bring.
Between January and June 2024, 491 Annual General Meetings (AGMs) were held across the ASX300 index. In this article we’ll analyse the key trends and issues that emerged at these AGMs, including the incidence of votes against remuneration reports and director nominees, and the evolving landscape of shareholder proposals in Australia. Additionally, we’ll provide strategic recommendations to help companies to improve investor relations and better align with shareholder expectations.
Overview
Following key trends observed in Georgeson’s 2023 AGM Season Review, trends in strikes against executive remuneration reports and accountability votes against directors continue to dominate the landscape, alongside a pronounced reduction in shareholder resolutions.
Meanwhile, shareholder voting decisions can sometime send what appear to be mixed messages to issuers.
For example, casting votes against adoption of a remuneration report does not mean investors are ready to incite a board spill, nor will they necessarily vote against grants of performance rights to executives proposed at the same meetings.
Similarly, low support for management climate transition plans may not lead to votes against the re-election of the board members considered most responsible for the perceived flawed disclosure.
Instead, these results generally signify a call for issuers to increase transparency and for board members to be accountable for a growing list of intractable social and environmental problems whilst maintaining open channels of communication with investors. The dialogue between issuers and investors on Environmental Social and Governance (ESG) topics is therefore becoming more complex and nuanced, but also more essential than ever.
Shareholder activists in Australia are now clearly using other methods to express dissatisfaction. During this mini season, 14% of the analysed companies received a strike against their remuneration report, while 24% incurred significant votes against2 the election or re-election of at least one director. These figures continue the upward trend that we observed in 2023, suggesting a continued rise in the upcoming main AGM season.
Meanwhile, the pending introduction of mandatory climate disclosures by the Australian Accounting Standards Board (AASB) brings new responsibilities for issuers and provides an opportunity for shareholder activism to increase scrutiny and look beyond climate, questioning companies’ overall approaches to sustainability and alignment to global standards and peer best practices.
Executive remuneration strikes
Based on the March rebalance of the ASX300, of those issuers that held their AGM in the first half of 2024, there were a total of seven companies (14%) that received a strike, up from 5% and 11% in the corresponding periods in 2022 and 2023 respectively. These seven issuers were Sigma Healthcare, Latin Resources, Syrah Resources, Scentre Group and Karoon Energy all receiving a first strike and Brainchip Holdings and Dicker Data with a second strike (with the latter in fact constituting its fourth consecutive strike).
The key remuneration topics that led to negative votes appeared to have some common themes across the seven companies. These included uncapped cash bonuses, short vesting periods, an emphasis on growth rather than dividends, and CEOs’ fixed pay being set above the median of market peers. Despite these concerns, we continue to observe that large institutional investors are typically reluctant to vote in favour of a board spill resolution even after delivering an emphatic second strike. In fact, the two companies which received a second strike obtained 97% (Dicker Data) and 86% (Brainchip Holdings) of votes against their board spill resolutions.
Despite strikes being a meaningful tool for shareholders to voice their dissatisfaction, votes against management performance rights resolutions took an interesting turn during this mini season. In 2023 we observed that companies that received a strike also faced significant votes against their performance rights grants, demonstrating investor dissatisfaction with overall remuneration practices. However, in 2024 we observed that companies receiving strikes did not necessarily obtain significant votes against their performance rights. It will be interesting to monitor whether this trend continues into the main 2024 AGM season.
Director elections
In terms of votes against director elections or re-election, 18 board members at 12 companies (24%) received significant votes against (i.e. votes of 10% or more). While these numbers were slightly lower than the 2023 data for the same period, the trend since 2022 demonstrates an overall upward trajectory, suggesting that accountability votes against directors are expected to remain topical in the upcoming main AGM season. Additionally, during this mini season, the average support for director nominees was 96%, but 5% lower (91%) for those directors at companies that received a strike.
Shareholder activism
Contrary to the context observed in the US market, shareholder proposals in Australia continue to decrease with zero shareholder proposals in the first half of 2024. The only climate disclosure proposal observed during this period was a management-initiated ‘Say on Climate’ non-binding resolution put forward by Woodside Energy. This resolution was strongly opposed by climate-focused investors and failed to received majority support with over 58% of votes cast against. Interestingly, despite an active campaign against his re-election on the grounds of accountability for the climate disclosure, the company’s Chairman received over 83% support and will hold his position for another three years.
Another relevant case study is Karoon Energy and its proxy fight with two activist investors Samuel Terry Asset Management (STAM) and Sandon Capital who advocated votes against several proposals put forward by the board. The activist campaign was driven by those investors’ disagreement with the company’s capital management practices and dividend policy. Despite this active campaign, Karoon Energy succeeded in passing all of its AGM resolutions but did receive a marginal remuneration strike with an against vote of 26.4% of votes cast.
Conclusion
Although every case is unique, these examples show that ESG activism tactics are shifting away from relatively blunt instruments like shareholder proposals, to increasing pressure through negative votes, higher scrutiny on climate strategies – particularly for the financial and energy sectors – and the link between pay, performance and shareholder returns.
Moreover, votes against directors combined with the lack of board spill resolutions passing demonstrate that individual shareholders with different views, concerns and interests, are more eager to have open and continual engagement with issuers to resolve problems than to see the company fail. The lower average support for director nominees in companies that received a strike also demonstrates the increasing pressure on board member accountability.
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1 This is for the top ASX300 corporations based on the March 2024 rebalance.
2 Significant votes against directors means a proposal to elect/re-elect a board member receives 10% or more votes against them.
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We work with companies to avoid strikes, navigate the complexities of activist campaigns, engage with investors, and be better prepared for AGMs. To find out how we can help your company, get in touch with our team today.