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Proxy Governance Update: January 2021 round-up

Notable Highlights:

  • Women’s Company Secretary Circle (WoCoS) – Invitations to the 9 March 2021 event to follow! We have lined up an exciting virtual evening of insightful discussions on the topics of 2021 AGM season preparedness, impactful shareholder and stakeholder comms, and continued focus on ESG and D&I. Our illustrious panel of guests will include representatives from two of the most influential institutional investors and proxy advisory agencies. If you are not already on the invitation list, please email us.
  • The Non-Executive Director Awards is going virtual this year on 25 March. Announcement of the 2021 Awards Nominees will be made in the Sunday Times in early February. Boudicca’s Managing Director, Sheryl Cuisia, is proud to be a judge of the Awards, and Boudicca from Equiniti are pleased to be co-sponsors. If you or members of your boards would like to attend the Awards, please email us.
  • Shareholder Rights Directive II. New rules are attempting to increase transparency around share ownership by placing obligations on intermediaries in the investment chain to disclose information. With differing application across Europe confusion and delays abound: definitions of shareholder, systems issues for the passing on of information to name a few. And whilst the aim was to provide transparency of the beneficial owner of the shares, those holding the voting rights, it may be of more interest to understand who manages the shares. For further details read the article in the IR magazine.
  • Read the Boudicca Corporate Governance Team’s 2021 AGM season preview. Following our brief summary issued on 13 January please find below our more fulsome 2021 AGM Season considerations, considering what we believe will be some of the key areas of focus over the forthcoming proxy season.

We wish you a good start to the 2021 Annual Reporting and AGM season and look forward to providing our next update at the end of February. In the meantime, should you wish to seek further insight and support please do contact the Boudicca Corporate Governance Team, led by Anne-Marie Clarke, Head of Corporate Governance, and Olayinka Agbede, Principal Governance Officer. We are here to help, and, as Company Secretaries ourselves, we understand how important it is to have support and an understanding perspective, during the AGM season.

Boudicca 2021 AGM Season Considerations

We are delighted to share with you our more fulsome update on our 2021 AGM season report. Here we cover:

  • 2020 – an extraordinary year to report on
  • Diversity continues to gather pace, or does it?
  • Remuneration review, having a say on pay
  • Engaging employees – evolution or revolution?
  • Proxy advisers and our top tips for engagement

Setting the context

In 2021, after a period of unexpected pandemonium, we are expecting developments and challenges given that the context for corporate performance is changing quickly and COVID-19 is accelerating that change. These changes, which have arisen from the initiatives and policies recently codified in response to the uncertainty brought on by the pandemic and the frequently changing economy in which we live, need to be adopted by the respective entities to which they pertain.

Institutional investors and proxy advisers are once again leading the charge, with many having already communicated their stewardship priorities for the year, which are shaped by their observations on recent events.

Our expectation is that there will be a requirement for better disclosure and enhanced discussion of how the board oversees Covid impacts, climate change, sustainability, diversity & inclusion and executive remuneration. Linked to this we expect enhanced stakeholder engagement reporting, often combined with the section 172 statement. The prominence and importance of stakeholder engagement has been accelerated and we expect this to be reflected in terms of the focus of Annual Reports. At the end of our update, we will provide you with our top tips for engaging with the proxy advisers during the 2021 AGM season.

2020 – an extraordinary year to report on


‘We expect a sharpened focus on risk management’

COVID-19 is a stark reminder of the need to have robust enterprise risk management (ERM) processes that are closely linked to crisis preparedness and resilience. Are the company’s risk governance processes keeping pace with its changing risk profile?

Consider the enhanced role of the Audit Committee and Board. While boards may be reluctant to establish an additional committee, considering whether a finance, technology, risk, sustainability, or other committee would improve the board’s effectiveness can be a healthy part of the risk oversight discussion. Also, consider whether risks should be reallocated among committees, and whether committees have directors with the necessary skills to oversee the risks their committees have been assigned.

We consider that the emerging risks that will be faced as we continue through the pandemic and beyond are primarily linked to different stakeholder groups:

  • employee and customer health and safety (e.g., employee well-being, pay equity, racial and gender diversity, human rights and meeting commitments to stakeholders);
  • managing remote workforces (e.g., processes and protocols in place around the integrity, protection, availability, and use of data);
  • acceleration of digital transformation (e.g., capabilities deployed to minimise the duration and impact of a serious cyber breach);
  • changing customer demands (e.g., substantial sustained reduction in sales and revenue); and
  • vulnerable supply chains (e.g., extended periods of supply chain disruption)

With shareholders continuing to submit more proposals on ESG issues – particularly the “E” and the “S” issues related to COVID-19, the social aspects as we emerge from the pandemic will notably focus on clearer disclosure of how the company is addressing ESG risks and opportunities – particularly climate change and diversity.

Climate change

‘Unilever has made a public statement regarding putting its climate goals to an advisory shareholder vote in 2021.’

Climate change is visibly disrupting business. As with any form of disruption, climate change is creating and will continue to create risks and opportunities for business in a diverse number of ways. This disruptive relationship between climate change and business is already receiving increased attention. This has been prompted by the Paris Agreement, the emergence of climate-related legislation, the recommendations of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD)[1] and, most recently, the heightened awareness of physical impacts and
risks detailed in the Special Report of the Intergovernmental Panel on Climate Change (IPCC) on Global Warming1.5°C.

Institutional investors such as BlackRock[2], Aviva[3] and others have published their voting guidelines and policies, and their expectations are that companies will,

  • Adopt of target to achieve net zero emissions by 2050 and commit to the Science Based Targets Initiative framework;
  • Integrate climate goals into their business strategy and financial targets, including their capex framework;
  • Publish a transition roadmap, including short- and medium-term climate targets and milestones; and
  • Report on progress using the Taskforce on Climate-related Financial Disclosures framework (TCFD) and consider the option of providing investors with an advisory vote on the report.

The disclosures required means that ultimately climate change should be part of the governance and stewardship duties of CEOs and directors, in the same way as any other issue prioritised at the board level. Granted, no governance structure will ever control climate change. However, a holistic corporate governance architecture will certainly enable a much easier systemic approach to climate risks and opportunities.

Moreover, investors are increasingly targeting banks over their role in financing carbon-intensive projects and industries. Last year, shareholders filed a landmark climate resolution at Barclays’ AGM, which received the support of a quarter of shareholders and forced the lender to strengthen its policies. Similarly, a group of investors have also filed a climate resolution ahead of HSBC’s annual meeting in April 2021, demanding that the lender publish its strategy and targets to reduce its exposure to fossil fuel assets.

Important progress improving disclosure has already been made – and many companies already do an exemplary job of integrating and reporting on sustainability – but there is still a need to achieve more widespread and standardized adoption. While no framework is perfect, it is a widely held belief that the Sustainability Accounting Standards Board (SASB) provides a clear set of standards for reporting sustainability information across a wide range of issues, from labour practices to data privacy to business ethics. For evaluating and reporting climate-related risks, as well as the related governance issues that are essential to managing them, the TCFD provides a valuable framework.

Last year BlackRock voted against or withheld votes from 4,800 directors at 2,700 different companies globally. Furthermore, it has confirmed that it will continue to hold board members accountable where it feels companies and boards are not producing effective sustainability disclosures or implementing frameworks for managing these issues.

Regulators are also putting pressure on banks to change their practices. The Bank of England is planning its first climate stress test for financial institutions in June 2021. This will examine whether bank capital levels are sufficient to absorb potential losses from climate change.

What about the proxy advisers?

ISS will, under extraordinary circumstances, consider recommending a vote against individual directors for material failures of governance, stewardship, or risk oversight (including, but not limited to, environmental, social, and climate change issues)

Beginning in 2021, Glass Lewis will note as a concern when boards of companies listed on the FTSE 100 index do not provide clear disclosure concerning the board-level oversight afforded to environmental and/or social issues.

IVIS will be issuing an Amber Top on the ESG report of any company in a high-risk sector that does not address all four pillars of TCFD (Governance; Risk Management; Strategy; Metrics & Targets).

PIRC, whilst we await the release of 2021 guidelines, have a separate section in the 2020 guidelines setting out the governance of environmental and social issues responsibility reporting.


‘The board’s role in promoting the long-term sustainable success of the company’

The UK Corporate Governance Code makes it clear when it talks about the board’s role in promoting the long-term sustainable success of the company. So how does that manifest itself for your company? And how has the COVID-19 pandemic impacted, if at all?

We have seen that companies are moving away from a focus on profit towards reporting on their Purpose and Values and how this links to the strategy. The key is demonstrating how this delivers long-term sustainable success.

We have already witnessed proxy adviser negative recommendations around the topic of sustainability, with PIRC notably raising concerns over sustainability policies and practices and board level accountability for sustainability issues.

The importance of governance of sustainability issues is growing, so we expect to see the formation of more Board committees or existing committees expanded to cover sustainability matters, and for this area of governance reporting to grow.

How 2020 reporting impacts resolutions at the 2021 AGM

‘When investors have concerns, about various aspects of governance, ultimately this manifests itself through their AGM vote’

Undoubtedly, director election/re-elections may well face additional scrutiny, depending on how the company has weathered the storm during 2020, and whether investors have confidence that they can effectively steer the company as we emerge from the pandemic. We have already witnessed a fair level of board changes during January 2021, with recent AGMs seeing votes against or abstentions, and shareholder activism. When investors have concerns, about various aspects of governance, ultimately this manifests itself through their AGM vote. Early engagement, effective reporting and understanding potential areas of concern are key for successful director re-elections.

During 2020 we have also witnessed proxy adviser concern over the use of ‘cash box’ structures, circumventing the normal pre-emption rights of shareholders. This has led to subsequent negative recommendations for share authorities sought at the next AGM. Therefore, any requests for share issue authorities, even if they are routine, should be supported with good rationale as to why the directors are seeking these authorities.

Diversity continues to gather pace, or does it?

‘With ethnic diversity, we have already seen the CBI[4] call and L&G[5] making public statements about 2021 targets’

The annual Female FTSE Board Report[6], sponsored this year by EY, finds that although the FTSE 350 looks on track to reach the target of 33% of women on boards by the end of 2020, a lack of representation at the top could be impacting the number of women in the executive pipeline.

The most notable increase in female representation is among Non-Executive Director (NED) roles. In the FTSE 100 the percentage of female NEDs is at an all-time high of 40.8% (38.9% in 2019), while the percentage of female executives has risen only slightly to 13.2% (10.9% in 2019).

There is no doubt that targets have helped to improve diversity on UK boards, by setting a clear vision and keeping organisations on track. However, as outlined in the report, targets must be coupled with action on cultural change to accelerate progress for future generations and spark a positive ripple effect that extends into the wider economy and society.

As expected, it has been challenging for FTSE 100 companies to hit the Parker Review target of ‘one by 2021’ set in 2017. Despite growing calls for greater ethnic diversity on boards, early indications suggest mixed progress on ethnic diversity in the UK. Despite perceptions in the UK that the issue of racial injustice is one predominantly emanating from across the Atlantic, UK companies trail their US counterparts when it comes to ethnic diversity in the boardroom. According to the Parker review report published in 2020[7] the pace of progress has been slower than hoped. There has been renewed focus on the Parker review targets for 2021 and 2024 and the #BlackLivesMatter movement throughout this pandemic, and society will continue to drive expectations in this regard. Cognisant of commentary on how the pandemic has disproportionately affected women and ethnic minorities, we would expect strong commitment to gender and ethnic diversity, and addressing the issues faced by these minorities, to continue. Whilst proxy advisers and investors may show understanding in circumstances where the gender target has not been met in 2020, a commitment to complying this year would be expected.

With ethnic diversity, we have already seen the CBI[8] call and L&G[9] making public statements about 2021 targets, and so we would expect investors to be looking for commentary on how companies are planning to meet those targets. As previously stated, investors are expecting more robust disclosure on diversity. In August 2020, State Street Global Advisors (SSGA)[10] informed board chairs that starting in 2021 SSGA will ask companies in its investment portfolio “to articulate their risks, goals and strategy as related to racial and ethnic diversity, and to make relevant disclosure available to shareholders.” The letter emphasised, “we are prepared to use our proxy voting authority to hold companies accountable for meeting our expectations.” We are monitoring what this means in practice as we see the first of the 2021 AGMs taking place.

So what does this mean for your Annual Report? We recommend being clear on the role of the Nominations Committee in achieving the targets and how these will be met. In addition, articulate how this board leadership translates and reflects diversity and inclusion throughout your business.

Remuneration review, having a say on pay

‘The larger institutional shareholders warned companies last year that executives needed to share the pain of the pandemic’

More than half the chief executives of UK companies that have already reported 2020 figures received no bonus, as boards moved to counter investor criticism that bosses profited while businesses were impacted by the pandemic, according to the annual executive remuneration report by Deloitte[11].

Annual bonuses of the 45 companies that reported in the second half of 2020 were significantly lower than the previous year, according to an analysis by Deloitte. More than half paid no bonuses at all, while salary and pension allowances for executive directors also fell.

These initial signs of pay restraint preface what could be a combative AGM season, with investors already warning they will take a hard line on high executive pay at struggling companies, with added focus particularly on long-term incentive plans. The larger institutional shareholders warned companies last year that executives needed to share the pain of the pandemic.

L&G have stated that they will vote against approval of the Remuneration Report where executives are paid an Annual Bonus, in any of the following circumstances:

  • The company took a Government loan and has not paid it back in full;
  • Dividends were suspended; and
  • Employees were let go or had their salaries reduced.

We recommend Remuneration Committees carefully consider any changes to executive remuneration throughout the year, in the context of the wider workforce experience and shareholder expectations. The importance of providing detailed rationale within the Directors’ Remuneration Report will assist with gaining shareholder approval at the AGM.

Finally, looking forwards, an important factor to consider will be how incentive schemes promote, and reward performance on ESG matters linked to the aim to deliver long term sustainable success.

Engaging employees – evolution or revolution?

‘2020 was a year like no other for seeing how, and if, a company’s actions spoke louder than its words.’

2020 was a year like no other for seeing how, and if, a company’s actions spoke louder than its words. Whilst many companies have well established processes in place for workforce engagement, it has only been 2019 and 2020 where we saw an expansion and focus on the narrative in Annual Reports, driven by the UK Code requirements to select an option for how the Board would engage with the workforce. We fully expect companies to have developed both their Board processes and reporting in this area, linking into section 172 stakeholder reporting and the Remuneration Committee report. In the latter case, we expect richer narrative on what workforce engagement has been undertaken to explain how executive remuneration aligns with the wider company pay policy. As described above, will the workforce experience align with that of executives in 2020? Was the approach to bonuses universal throughout the company? Were salary increases/cuts received by all? We also expect a large focus of COVID-19 reporting to be linked to the workforce experience.

When considering the narrative to explain workforce engagement, we pose these questions

  • Would your employees recognise this as the company that they work for?
  • Do they feel engaged, that their voices and opinions are heard?
  • Do they feel valued as fundamental to the company emerging stronger and more resilient to deliver the long-term sustainable success of the business?

Proxy advisers and our top tips for engagement

The 4 Es

The most important advice we can offer is to remember that proxy advisers are another stakeholder with whom to engage and explain how you are running your business. As with all stakeholders, they can only make their decisions based on the information presented to them, and this must be publicly available information. So, how can you effectively engage with the proxy advisers (the 4 Es):

  • Engage: Offer engagement meetings with them ahead of publishing your Notice of Meeting, for example if you have a Remuneration Policy being presented for approval, include them as part of your shareholder engagement campaign.
  • Explain: Narrate, describe, explain…for any decisions you have made, provide the rationale, understand what proxy advisers are looking for when making their recommendations. Annual Report drafting is key.
  • Evaluate: know when the proxy advisers are likely to draft their reports and be ready for reviewing. Evaluate the risk to your AGM resolutions.
  • Expand: for any negative recommendations, expand your explanations and engagement to the proxy advisers and your shareholders.

The influence of proxy advisers on your share register must be taken seriously. Shareholders are at liberty to decide whether they subscribe to the proxy adviser reports and whether this is followed or supplements their own internal research. Remember the Boudicca wisdom that the company should always aim to have the last word on engagement with their shareholders.

Anne-Marie Clarke, ACG

Head of Corporate Governance

D:+44 (0) 203 048 1199

M:+44 (0) 795 8430 361



Olayinka Agbede, ACG

Principal Corporate Governance Officer

D: +44 (0) 203 048 1204

M: +44 (0) 780 7265 224