Shareholder activism is changing human resource policies around workplace diversity and inclusion. We use the narrative of Nia Capital, a leading shareholder activist that tackles problems in corporate workplaces through firm engagement and bringing resolutions to the floor via proxy voting.
In a monumental milestone of what’s come to be called “stakeholder capitalism”, activist hedge fund Engine No 1 successfully claimed three seats on Exxon’s board of directors in 2021 with the goal of forcing the energy goliath to reduce its carbon footprint. The success of Engine No. 1 illustrates how activist investors are increasingly using proxy votes to drive systems change and encourage companies to disclose and improve their commitments to people, profit and planet. With more than 500 shareholder resolutions on environmental, social and governance (ESG) issues proposed in 2021, companies increasingly need to demonstrate how they are creating more inclusive, diverse and sustainable workplaces.
How proxy voting works
Publicly traded companies report their activities to shareholders through their annual meetings. Prior to these meetings, companies send shareholders information on topics to be voted on, such as share ownership, the structure of the board of directors (BOD), and executive salary and benefits. Investors who own voting shares in the company as of the company’s record date are typically eligible to vote on these issues. A majority vote is typically required to pass the proposal.
Proxy voting refers to a ballot cast by a single person or firm on behalf of a firm’s shareholder who may not be able to attend a shareholder meeting, or who may not choose to vote on a particular issue. Typically, shareholders receive a proxy ballot in the mail along with an information booklet called a proxy statement, which describes the issues to be voted on during the meeting.
Rather than physically attending the shareholder meeting, investors may elect someone else, such as a member of the company’s management team, to vote in their place. This person is designated as a proxy and will cast a proxy vote in line with the shareholder’s directions as written on their proxy card, which typically include responses such as “For,” “Against,” “Abstain,” or “Not Voted.”
Importantly, shareholders may also submit proposals themselves. Today, activist investors are no longer sitting on the sidelines. They are leveraging support through shareholder coalitions to advance environmental and social proposals on several key issues. Although most shareholder proposals are advisory and can’t force a company to act, companies that ignore popular shareholder initiatives face reputational risk – especially when many proposals are shaped by events, from the climate crisis to #MeToo, unfolding in the world.
Proxy voting as a tool to improve fairness in the workplace
Nia Capital is among the most active investors making use of proxy votes that support values of inclusion, diversity in leadership, and environmental sustainability. In 2020, Nia Capital filed six resolutions for deliberation on the topic of diversity disclosure. The targeted companies – including Gilead Sciences, Sarepta, and SunPower – committed to substantive improvements in their exposure of diversity data. For example, at Fortinet Inc’s 2020 annual meeting, a Nia shareholder resolution requesting the release of quantitative diversity data and an annual workplace diversity report received 70% support from shareholders.