Amid a turbulent geopolitical climate and with plenty of bearish sentiment still present in global capital markets, we expect stronger investor focus in the forthcoming proxy season on how boards manage the opportunities and risks over which they have control in the face of growing external uncertainties. Nevertheless, there are positive signs that the economic downturn may not be as deep as previously anticipated; improving investor confidence, alongside suppressed company valuations and a weak GBP and Euro against the U.S. Dollar, may mean that a growing number of European companies find themselves in the sights of overseas suitors as the year progresses.
Rising Cost of Living – and Investor Scrutiny
Average 12-month inflation exceeded 10% across Europe in 2022; in light of the current cost of living crisis, we anticipate that the perennial topic of executive pay will be increasingly considered by shareholders in the context of the experience of a company’s stakeholders. We expect that many European companies will be probed on whether they are paying a living wage to their workers and those in their extended supply chain. Investors will also be keen to understand whether any salary increases for executives have been replicated for other employees, and whether companies have taken any further measures to support employees at lower levels of the organisation whose real incomes have declined during the year. Despite market volatility, many European stock indices are trading close to all-time highs. We expect that investors will be paying close attention to equity-based awards that vested in the past year to ensure that remuneration committees have exercised appropriate discretion where necessary to avoid windfall gains for executives that are more attributable to the general post-COVID recovery of the stock market than to company performance.
ESG and Climate Issues
The 2023 proxy season will also provide further insight into how investor thinking on ESG has evolved in the past year. We expect that many European companies and their shareholders will continue to view “Say on Climate” as a worthwhile mechanism to engage on companies’ climate transition plans. That said, we do not expect a substantial increase in the number of Say on Climate proposals in Europe this year – and we may start to see a move away from companies offering annual advisory votes on their climate reporting. However, with growing concerns about greenwashing, companies that make unsubstantiated claims about their positive impact or that lack rigour in target-setting and reporting are likely to become targets of shareholder questions and resolutions. We expect specific agenda items related to social and environmental themes to be increasingly analysed by investors through a lens of financial materiality and long-term shareholder value, particularly where a proposal is requesting more than just improved reporting. At the same time, investors themselves are likely to be subject to a higher level of scrutiny of their voting records against their disclosed stewardship policies, and we expect a growing interest from asset owners in directly participating in certain general meeting issues through “pass-through voting”.
Meeting Format: In-Person vs Virtual
As to the general meetings themselves, it appears that the virtual meeting format is here to stay, for the time being at least. While most European companies with which we have engaged in recent months claim to not have specific long-term plans regarding their meeting format, some investors may continue to advocate for a return to in-person meetings unless companies are able to demonstrate that they are not utilising the virtual meeting format to avoid difficult discussions or to otherwise restrict shareholder rights.
Looking for More?
This post is excerpted from our Continental Europe 2023 Proxy Season Preview, which features a market-by-market overview of key trends and regulatory developments, notable meetings to watch out for in the coming months, and how Glass Lewis is approaching these issues. Our suite of regional Proxy Season Previews is available to Glass Lewis clients on Viewpoint and Governance Hub.
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