May 3, 2024

Proxy Season 2024 Trends

Hey there, and welcome to People Count, a DiversIQ podcast where we talk about workforce diversity and human capital management from a data lens. DiversIQ is the leading provider of human capital and DEI data for the largest publicly traded companies in the world. We provide the most comprehensive dataset focused on DEI, human capital, and other social factors affecting the materiality of company culture, employee retention, and inclusion. I’m Dan Berlingeri and today, I’m joined by Josh Ramer, the CEO and cofounder of DiversIQ. Josh, how are you doing today? 

Josh Ramer

Pretty good, Dan. How are you?

Dan Berlingeri

Good Josh, real quick for our audiences. Who are you? What does DiversIQ do, and how do we help our customers?

Josh Ramer

Yeah. Thanks, Dan. I like you said, I am the cofounder of DiversIQ along with, with Hillary. We we founded DiversIQ in early 2021 with the idea of helping stakeholders make better data informed decisions, about human capital and DEI. So that could be, an HR manager or a DEI leader that wants to figure out how to build a better recruiting pipeline and understand who’s doing really well. What are what are some case studies, best practices, some benchmarks to help understand where they are and how to get better. Investors that wanna use this information to push companies to do better, to be more transparent, to change their ways, or to use this information to help them make investment decisions, build products, help their customers, invest their values, or large professional services firms that wanna use this data to help their clients, benchmark and build programs. Those are those are some examples of our stakeholders we’re trying to help. 

Dan Berlingeri

Today, we’re talking about proxy season. Josh, what is proxy season? For some of our listeners, most of them might already know. They’re probably in the thick of it. But for those who don’t, what is it?

Josh Ramer

Yeah. So almost every large comp publicly traded company in the US has to have an annual meeting, and during that annual meeting, they talk about the state of the business, and there’s also, a handful of at least a handful of shareholder proposals that people who own shares in the company get to vote on. It’s almost always, several of the board members or the entire board is up for reelection. Usually, they’ll have to vote on whether to retain or have a new auditor, and there’s usually some vote around approving their compensation package. But shareholders can propose a lot of other, items on the agenda such as, we want this company to stop using single use plastics, or we want them to disclose their political expenditures, or we want them to be much more transparent about their workforce representation, retention, and hiring data. So it’s a chance for everyone who owns at least one share of the company to actually, vote and have a say in in what they think the company should or should not do. 

Dan Berlingeri

Excellent. Excellent. And where does a proxy statement come into that? I understand that’s one of the biggest data, documentation and bits of disclosure that we do capture and collate. Is that right?

Josh Ramer

Yeah. So every company used to hold an in person annual meeting and every shareholder everyone who owned a share was allowed to go to the meeting and actually vote at the meeting, on these proposals. But for those who couldn’t, join the meeting, they would get in the mail a paper proxy that they would fill out, here’s how I’m gonna vote, and some representative from the company would be out proxy and would actually vote for them based on this this, piece of paper they filled out. Now it’s much more digital so you can go online and fill out your proxy. You can do it over the phone. You can still, you can join all of these now virtual shareholder meetings and vote directly during the meeting.

But, basically, it’s usually either somebody filling out a proxy card and a representative voting for them or large, advisors and managers like Blackrock who end up voting for millions of individual shareholders or or or companies or pension funds that have given Blackrock their money, and now Blackrock’s responsible for voting those shares either based on what those organizations say or based on their own guidelines of how they’re gonna vote on this stuff. So it’s a proxy because it’s somebody acting as a proxy for the shareholder who actually, has the vote. 

Dan Berlingeri

Excellent. You’re looking at these proxy statements every single day, oftentimes late into the night. It’s a very busy time of year. What are you noticing about this space to date? What’s different about this proxy season than previous proxy seasons?

Josh Ramer

Well, it’s been an evolution over the last 4 years, really, looking just  at a proxy through a human capital and DEI lens, and so, you know, like I said, it used to be that, the biggest item on the agenda was was voting for directors. A lot of companies the entire slate of directors is up for reelection every year. Some companies have a staggered laddered structure where, someone will have a term for 3 years, and there’ll be 3 classes of directors, and then again, it used to be something like the auditing firm was like, do you want, you know, PWC to be up be still be the auditing firm, and a more recent trend has been say on pay where they’ll actually say, here’s what, you know, we’re we want to pay our executives, and shareholders have a nonbinding vote to say how they feel about that executive package.

That’s been an emerging trend. But since since 2020, and it really started in kind of the end of the 2020 shareholder season and early in 2021 after George Floyd’s murder. There’s been a lot of focus on transparency of on the makeup of the board. So when I started looking at this in mid 2020, most companies would say, at most, we have 3 women on the board. We have 30 percent women. Now, the trend has become here is the granular intersectional makeup of our board. If not, here is for each individual director, here’s how they self identify. Here’s their gender. Here’s their race or ethnicity. Here’s their sexual orientation. Here, they might be a veteran, might have a disability, and so, we’ve seen a lot more of that.

You know, just to give you an idea of how much that has changed. In 2020, 60 percent of companies were disclosing the aggregate gender of their board, and that’s up to 95 percent so that was, you know, kind of Wow. What most companies were doing. But for individual directors, the race and ethnicity in 2020 only 4 percent were disclosing that and now that’s up to 35. Percent. So you know it’s almost a tenfold increase in the number of companies that are identifying, how each individual director self identifies from a recent ethnicities perspective. LGBTQ plus in the aggregate, one percent were disclosing that in 2020, and now it’s 27 percent, and that’s across our whole universe, and just to give you another sense of this, we have a transparency score where we measure what companies are disclosing about board director characteristics, and it’s out of a one, and it was 14 back in 2020 on on average out of a one, and now it’s 43, and so it’s kind of been like they were disclosing one thing, and now they’re disclosing 4 things out of 10.

So it’s been a huge trend, and at the larger companies, it’s it’s even higher. It’s over 50. So the kind of table stakes has become we’re gonna disclose the intersectional makeup of our board with gender and race and ethnicity, and the other interesting thing related to this is policies around how do we ensure that our board is more diverse and not just with gender and race, but with the skills that we believe the skills and background and experiences we believe are important to our board, and so having, if not an explicit policy, some sort of verbal commitment to ensuring a diverse slate and that ensuring that we’re recruiting the right people to our board, and so about 50 percent of our universe has actually an explicit commitment to look for, women and people of color when they’re recruiting new directors. So that’s been a you know, that language in the proxy and talking about how important it is and the disclosure of the actual characteristics. That’s been a real huge change in just 4 years.

Dan Berlingeri

That’s exciting. These last 4 years have been, you know, fraught with quite a bit of social political, upheaval and turbulence. How are companies evolving to adapt to these shifting pressures from both sides of that fence?

Josh Ramer

It’s been interesting because, so as a, kind of related, a company can petition the SEC to not allow a shareholder proposal. So, you know, they don’t want frivolous proposals like, I want the CEO to change his or her name because I think it’s hurting you know, ridiculous things. Any shareholder with a certain threshold of shares or monetary value of shares might be, like, 2,000 dollars I think can make a proposal or try to get a proposal on the agenda, and so, you know, the company could say this is ridiculous. You can’t allow this proposal, and the SEC used to, most of the time, side with the company and allow them to exclude proposals.

As an example, proposals to disclose EEO-1 data, the intersectional, workforce representation data that’s now become kind of ubiquitous for companies to disclose. Companies like Walmart, only 4 or 5 years ago, said to the SEC, this is not financial financially material or this is proprietary information or they would use different arguments, but, like, we we don’t think this should be voted on, and the SEC oftentimes would not even allow shareholders to vote on it, and as is the case every 4 or 8 or 12 years, when administrations change, there’s 5 SEC commissioners, and right now it’s 3 democrats and two republicans, and so it’s changed, and now they allow they allow a lot more, and it’s almost like we’ll side with the shareholders and just allow it on the agenda, and so it’s been interesting to see the different types of proposals that have emerged, and some of them, you know, just you wouldn’t have seen it before because the company might not think it’s it’s material, and I mentioned a few of those.

You know, it might be like the plastics or the political spending, but also we’ve seen kind of stealth proposals emerge. Like, this essentially, this company is discriminating against white men, and we think an audit should be done to look at their policies and practices, and so. I think companies have seen a lot of pressure from big stakeholders, and that’s that’s led to a lot more, transparency into workforce demographics and metrics around their workforce and HCM. I think a lot of it has also come from their employees that the younger generation really values that transparency, and diversity, equity, and inclusion has become something very important that companies need to show that you wanna work here. You’re gonna feel included.

You’re gonna feel like you’re a part of something, and so that’s you know, it’s been kind of in response to sociopolitical pressure and pressure from stakeholders. But now with the anti ESG and anti DEI backlash, they’re feeling the pressure from the other side, and some of them are realizing they have to at least tone down the messaging so that it doesn’t get criticized, or they’re being sued or brought in front of congress. But, also, I think it’s leading them to step back and say, why are we doing this? What’s our objective? How do we measure success, and how do we maybe some things we tried are not the right things.

They’re not working. They’re not leading to the outcomes we expected, and so, you know, in the proxy, that might be, companies were tying incentive compensation for their executives to, ESG factors in response to some stakeholder, pressure or outreach, and now they’re realizing it just doesn’t make sense, especially for executives that have no control over those things or it’s not really helping them do their job better. It doesn’t make sense. So. I think we’re seeing, you know, some rational, arguments among stakeholders about what’s right and what’s not, and then there’s some, what I would call, ridiculous arguments. You know you know, as an example, states saying it’s illegal to, incorporate any of this information into your decision making, and you could go to jail for 20 years if you incorporate ESG factors.

Dan Berlingeri

Sure. Right. Right. Any other unusual findings that you’re seeing this year?

Josh Ramer

Not so much unusual. There are there’s always good stories. So Elon Musk was awarded a pay package several years ago, which at the time, everyone thought it was ridiculous, but, also, it was based on the stock price having to increase thousands of percentage points, and if so, he was gonna be awarded 40 to 60,000,000,000 dollars which, you know, was, like, 13 percent of the company, and I think he had already owned 13 percent of the company. But the stock price exploded, and he was actually awarded this pay package, which I think as of today is worth, I don’t know, 48,000,000,000. Several shareholders sued in Delaware Court where where Tesla is technically based, and the judge struck it down, and so this this proxy season, they issued their preliminary proxy, but this, for for Tesla’s annual meeting, shareholders are going to be able to revote on this pay package, which he was already awarded.

He hasn’t so it was it was either options or shares, which he never got. He never, you know, he didn’t get the money yet. He still just has these shares or these options, but shareholders are gonna get to say whether or not they think he deserves this money, and he kind of said publicly, well, if I don’t get this money, I’m just not that motivated to continue to run Tesla. Maybe I’ll just go take my AI and run it in one of my other companies. So it’s an interesting situation because there’s been stories that have come out that basically say he’s too close to his board members, and they feel like they have to make him happy, and so, you know, a board is supposed to be mostly independent, and it’s really he works for the board, and so that’s an interesting situation which we don’t often see.

You know, there’s also it’s just interesting to see the different types of companies and the different situations. Disney had a proxy fight this year where, an activist wanted to you know, them to change strategy and wanted to get his own directors on the board, and that vote failed. Actually, the incumbent directors were reelected, and it was just I think it was last year or the year before where they had a similar situation, and so there’s a lot more not that there’s a lot more activists that are pushing forth agendas and trying to get, their directors on the board, but we’ve seen, I think, more success with, I would say, some of the proposals that wouldn’t have passed in past years and then some of these activists that have gotten some directors elected. So as an example, the famous one is, engine number one, which is a small activist fund.

Dan Berlingeri

Yeah. 

Josh Ramer

Which wanted Exxon to change some things strategically and had a small had a slate of their own electors, again, last year or the year before, and they actually got backing from some of the large advisers and asset managers, and they got their slate elected, and it was like this small it was like a David versus Goliath, and it was this small one which actually got their proposal passed. So in the past few seasons, we’ve seen some, you know, a lot more success with some of these social proposals. I think we’re seeing less of them this year, mostly just because all the large companies have already been very responsive to stakeholders, and if not, you know, all the times the proposal won’t even get voted on, but the company will agree to engage with the stakeholder and basically work towards what they’re asking for.

Dan Berlingeri

Right. Right. Talk about David and Goliath. Exxon’s been in the headlines a lot lately with, Arjuna Capital. Right? One of our.

Josh Ramer

Yes. So Arjuna Capital, which is a small asset manager and one other, stakeholder, I forget who, had were they were pushing for a proposal, basically for Exxon to move towards, you know, more sustainable, you know, move away from fossil fuels to a more, you know, sustainable energy future, and again, normally, the company might engage directly and say, let’s have a conversation, or they might go to the SEC and say, I don’t think this should be voted on because we’re an oil company and 95 percent of our revenues come from oil, and we’re actually working towards, you know, a sustainable future in these ways. But in this case, they actually sued in a Texas court, and you know, basically, it’s this one of the largest companies in the world suing a small asset manager saying that, you know, that, like, basically putting pressure on them to remove the proposal, which they ended up doing.

But, you know, basically, a small company can’t fight a company with almost unlimited resources because it would cost a lot of money to even defend just to get that proposal on the slate, and so it’s interesting that, you know, and that was an Exonn’s been in the headlines for funding stealth campaigns to, you know, basically, help climate deniers and help, you know, fight against the perception that man is causing, climate change and that they need to change their business. But this was this was really surprising to a lot of stakeholders. It’s like kind of the you know, the length that they would actually, you know, they would actually go to those those lengths to to not have shareholders even see this proposal and be allowed to vote on it.

Dan Berlingeri

Well, I’m sure a lot of shareholders, net advocates now are wondering, you know, what’s the next frontier? Where do we go from here in this evolving landscape? What are you seeing from your side? What do you believe is the next frontier?

Josh Ramer

 Well, I mean it’s scary too because it’s if you think it so, you know, there’s been several small, vendors and funds that have been sued or have been subpoenaed and have to appear in front of congress, and so we’re hearing from small companies that that say they’re spending 6 or even 7 figures on on legal fees, which is, you know, as much as their operating costs, and so it’s scary because it it it could be stifling even the threat of this happening, and it’s not just stakeholders. The companies a lot of companies are being sued by the same two or 3 organizations for their diversity programs or policies or efforts, and even if a lot of those lawsuits are struck down and they’re not successful, it’s going to discourage, other companies to not do things or it’s going to encourage them to say, like, we don’t even wanna take the risk.

Let’s just cut this program or let’s just stop setting a target for, diversity, and so, that’s that’s something that’s emerging, and I think everyone is kind of playing wait and see. Right? They’re waiting and seeing what’s gonna happen with the election, what’s gonna happen with any sort of emerging SEC rules. So the SEC recently passed the climate reporting rule, and I’ve just I think the other day, they said they’re gonna stop enforcing it because it’s being challenged. So, you know, they’re waiting for that. They’re waiting to see how some of these lawsuits play out, and everyone’s kind of a lot of these, you know, a lot a lot are being proactive one hiring law firms and advisory firms and saying, how would you just make sure that we’re we’re ironclad?

Right? but still, you can get sued. Right? Anybody can get sued. So it’s, scary that, you know, the large companies have the resources to basically, you know, limit the challenges and the pressure they might be getting from from smaller, you know, smaller stakeholders and smaller advocacy groups.

Dan Berlingeri

Right, or larger ones like Nasdaq too, right, with the board disclosure.

Josh Ramer

So so Nasdaq passed a rule several years ago, that required all Nasdaq listed companies, which are the majority of US public companies, to, it’s called a comply or explain rule. So first of all, they have to report the makeup of their board, with a suggested grid, which is intersectional gender and race/ethnicity, and then it’s suggested that they’re also reporting, LGBTQ plus or not, and then also having to hit certain thresholds of of diversity on the board for for women and what they call underrepresented communities, which could be which could be either race, ethnicity, or sexual orientation, and the rule has been challenged in court several times, and it’s still being challenged. There’s been several similar bills passed in California, one of which was successfully struck down and one of which is still being challenged in court.

But the interesting thing is, you know, the ball is rolling downhill there. What we’re seeing is that even so far with this flood of ESG and the ad reporting in just the last couple of months, companies are changing the names of things. They’re changing how they communicate information. But under the hood, they continue to be more transparent, more granular, and also keep talking about why this is important for their company to both report this information and measure the changes in their representation and also tie it back to why this is important for their company. One, it’s a competitive advantage to help attract and retain a great workforce and be able to compete with their peers.

Two, it’s really important for employees to feel like their company they know what’s going on at the company. They’re being included. they’re a part of something, but also tying a lot of these metrics to performance, and it might not be financial performance, but for every company, if they can retain great people and promote them from within, they don’t have to spend on hiring and training new people, and so for certain industries that’s that’s really important and that they can show the ROI of that. For some industries, it’s there might be different metrics around, safety and injury data, and basically, they have, you know, policies and people in place that are more productive. They have less days out of the office because they’re not getting hurt, and there’s less of a risk of those people working in the factory because it’s safer and you know, more modern equipment, and so each company in each industry is different.

You know, a restaurant chain that has mostly part time hourly workers, which might be younger and they have higher turnover, it’s gonna look very different from a technology firm that has more, you know, better educated, people and they’re competing, you know, for different sorts of talent. But everyone needs this information to help them understand how are we doing, how how do people feel about working here, how we compare to our peers, and how do we get better, and so it’s always thinking about what data should we be using, how do we measure our own success, what are our benchmarks compared to our peers, and then also what’s the best ways to communicate how we’re doing to our stakeholders so that, you know, people understand why we’re doing this, how we’re doing, and it’s a balance.

Right? There’s gonna be information that is more proprietary that they don’t want getting out, and so it has to be consolidated and aggregated to a degree. But I think the arguments that have been made around our turnover rate is proprietary or our. EEO-1 is proprietary. I think, you know, that’s fallen by the wayside. We’re not seeing that anymore. You know, and there are small cases where if a company is pretty small and their EEO-1 literally has one person in the category, and it might, you know, identify somebody’s personal private information. There are companies that say, we’re not gonna disclose this because we’re worried about and that’s okay, and it’s okay.

If a company says 3 of our directors decided not to self identify because they don’t wanna disclose that information publicly. That’s okay. Too. But, you know, I think we’re seeing that in a lot of cases, companies are saying, well, how bad can we look? Because everyone else’s data is out there already and like, we’re bad, but so is everybody else, or just we just have to get it out there, and the in class companies are saying, hey. We’re not doing great, but it’s important we feel like it’s important to get better. Here’s our plan to get there, and here’s how it’s gonna help us. Rather than, you know, apologize and make excuses to companies that are really at the forefront, and are you know, see it as competitive advantage or say, listen. We’d like to always be getting better. Here’s where we’re not doing well. Here’s where we are. Here’s what we’re doing about it.

Dan Berlingeri

Love it. Love it. I think it’s a great note to end on. Let’s hope that snowball keeps rolling downhill. Fantastic. Fantastic. Josh, thank you for your time today. We’re at just about time. Do you have any closing thoughts for us as we wrap up?

Josh Ramer

No. You know, I’m looking forward to getting some more sleep, come back because I think, you know, these numbers are as of a couple of days ago, so I don’t even know that it’s up to date. But about 3 quarters of the companies in our universe have actually published their proxy, and that’s really it’s about 80 percent are gonna publish kinda now, and then they kinda sprinkle throughout the year. but only 13 percent of them have had their shareholder meetings. So it’s always we have to stay on top of because those votes, a director might not be actually elected. So we have to stay on top of what’s gonna happen there, and we also have to look at all these proposals and see some trends there.

But, for us, it’s more it’s we’re closer to the end than the beginning, and then we’re gonna look back and say, what happened and help everyone understand what do you do next year. But there’ll be a nice kind of summer break, and so I’m looking forward to getting some sleep and start focusing on some other things. But, you know, also, it’s a little bit entertaining to look under the hood of all this stuff because there’s some there’s some funny things that emerge, and we’ll talk about that in some of the upcoming episodes. But, you know, some of my favorites, are when the company talks about how important diversity and inclusion are to them and how hard they’re working on making sure that they have a really, you know, diverse board and leadership team, and then they’ll have their bios, and it’ll be 8 white men. So anyway, it’s sometimes you just have to, like, laugh and have a few moments like that as you’re pouring over this stuff.

Dan Berlingeri

That’s funny. They’re it’s like 12 angry men in the play, but it’s like You know.

Josh Ramer

This was this was last year. There was a company. I’m not gonna call them out, but they public they’re a Nasdaq listed company, and they published their Nasdaq diversity grid, and they have 11 board members, and they just had 11 in the do not disclose, and they said all one, directors chose not to disclose their how they self identify. It’s obvious that the company said we’re not even gonna we’re not even gonn ask or we’re just gonna say that you choose not to because they feel like, okay. We’re gonna comply and we’re gonna explain, but we’re gonna do everything we can to not, you know, to basically, like, fight.

Dan Berlingeri

It’s so cheeky. Right. “Well, we participated.” Right? That’s funny. I love that. Well, fantastic. Thanks for your time again today, Josh. This has been really great. I know I learned a lot. If you enjoyed today’s episode and if you’d like this con if you like this content, if you like more of this content, there’s plenty more to check out at diversiq.com.

Dan Berlingeri

That’s d-i-v-e-r-s-i-q.com.

We have a blog, posts, we have articles, white papers, and webinars on topics like this, and if you join our newsletter, you can do so, at diversiq.com/newsletter. We will send all of those things to you directly once a week. Alright. Thank you so much again for your time, and stay tuned for next time.

Josh Ramer

Alright. Thanks, Dan. Thanks, Josh.