How the Pandemic Changed Proxy Voting

The 2020 proxy season may have been a pivotal one, with more shareholder meetings going virtual and voting participation hitting a 14-year high, according to new data from shareholder communications firm Broadridge Financial Solutions.  

Now industry experts say that investors are hoping that after the coronavirus pandemic subsides, virtual meetings, or a combination of virtual and in-person meetings, will continue. That doesn’t mean these meetings are without challenges, however: Recently published research also shows that there are obstacles for investors to participate in those meetings.  

“Institutional investors were voting from home while working remotely,” said Patrick McGurn, special counsel at Institutional Shareholder Services, by phone. “There was more time to spend voting and fewer engagements and other things going on.” 

According to Broadridge, 87.5 percent of the shares it processed voted, the highest percentage in 14 proxy seasons and a year-over-year increase of 2.4 percentage points. 

Chuck Callan, senior vice president of regulatory affairs at the firm, said that 300,000 more positions voted via Broadridge’s app in 2020 than in 2019. He added that a new, clearer email template supplied by the firm to brokers helped boost voting rates, increasing response rates by about 25 percent. It’s important to note that Broadridge isn’t the only player in the electronic proxy voting market, so their data is not indicative of all proxy voting.   

Electronic voting likely isn’t the only reason for higher turnout. Callan said he thinks an increased number of ESG proposals brought more investors into the proxy voting process. And McGurn noted that there have been fewer short positions taken on by institutions, both because of market concerns and because of bans in certain European countries.   

“The turnout numbers were impacted by fewer institutional shares being out on loan,” McGurn said. “As short-selling comes back online and given some of the broader trends there, that trend could reverse itself next year.”   

Some companies were hesitant about hosting virtual meetings, which is why they hadn’t previously tried to. “Given the necessity, they tried it,” Callan said by phone. “There was a lot of handholding initially. Once they got into it, they realized it wasn’t that scary.” 

Investors, too, struggled with certain aspects of the meetings. 

Shareholders experienced obstacles to submitting questions at approximately 55 percent of companies during the proxy season, according to research published in August by Miriam Schwartz-Ziv, a senior finance lecturer at the Hebrew University of Jerusalem. 

Schwartz-Ziv's research included the experiences of two prolific shareholder proposal filers and voters, John Chevedden and James McRitchie. The two attempted to submit questions to 88 companies but were only able to submit to 60 questions, likely due to technical difficulties, according to the research. 

“Some people question whether the participation levels were the same,” McGurn said. “Were shareholders able to ask questions, vote, and even log in?” 

According to Schwart-Ziv's research, some companies evaded questions by claiming that there were no additional questions, that only questions related to proposals would be addressed, or promising to get back to shareholders on unanswered questions. 

The first claim — that there were no additional questions — could be enabled by the virtual meeting format as a line of shareholders waiting to use the microphone for their question is not visible, Schwartz-Ziv noted. 

[II Deep Dive: How the World’s Second Largest Asset Manager Voted]

Despite these issues, virtual meetings are likely the future of shareholder meetings. According to an ISS survey published in September, nearly 80 percent of investor respondents said they’d prefer a hybrid model for shareholder meetings, with both virtual and in-person components.  

This is not so for the companies hosting the meetings. A plurality of non-investor respondents — 42 percent — said they preferred to meet in person.  

That probably won’t matter in 2021, as it’s unlikely that the pandemic will fully subside before the next proxy season begins.  

“We’re looking into 2021 and we’re still anticipating that most companies at least during that January to June time period will likely be holding virtual-only meetings,” McGurn said.