Digital proxy voting technology can help companies move beyond ESG box-ticking, says Jonathan Smalley of Proxymity.
The struggle for increased shareholder participation, couched within the wider movement for an enhanced form of shareholder democracy, has been one of the most significant movements in corporate governance of the twenty-first century.
In a direct challenge to the board-centric notions of governance, investors have increasingly pushed for corporations to focus both on furthering the interests of all corporate stakeholders as well as those of broader society through demanding drastic reform of the ways in which their voices are heard.
Historically, effective investor relations have always been defined by the symmetrical and transparent relationship between boards and their shareholders, and yet in the past decades, the outdated paper proxy voting process has often been considered a rubber-stamp exercise, with individual shareholders having no voice and institutional investors mostly taking a hands-off approach.
Recent transformations driven by technological innovation are now set to completely overhaul the traditional investor communication process and replace it with a digital ecosystem that leverages real-time proxy voting to deliver true shareholder democracy for public corporations, investors and financial intermediaries.
Going beyond ESG box ticking in 2023During the 2022 proxy voting season, shareholders submitted a record 924 ESG-related proposals to US companies, according to Georgeson. It is evident that more shareholders than ever want to know that the companies in which they are involved are making a positive impact on society and are aligned with their values regarding issues such as the climate crisis and the importance of ESG principles in shaping corporate behaviour.
Scrutiny of executive decision-making and corporate governance will undoubtedly increase in the coming months as we approach the 2023 proxy voting season, so understanding and incorporating shareholder thinking on key issues will be vital.
Warnings from economists around the globe that most economies will face a recession in 2023 have raised concerns among shareholders. In particular, the soaring costs for businesses and the profit warnings issued by UK-listed firms, which increased by 69% year-on-year in the third quarter of last year according to EY-Parthenon figures, will have many shareholders looking to boards for reassurance in 2023.
Adoption of digital proxy voting technologies will ensure the strongest possible connection between companies and their shareholders as they seek common understanding to navigate the expected turbulence.
Digital transformations affecting this year's proxy voting seasonAt the end of 2022, The State of Stewardship report revealed that any progress made towards shareholder democracy throughout the year had still fallen well short of expectations and what is really needed, demonstrating that shareholders without a strong voice and companies that invest heavily in expensive research are still struggling to understand voting activity.
With universal recognition that the old proxy approach is ineffective, lacks transparency and fails to bring companies and their shareholders closer together, tailwinds are strong for continued adoption of the new digital ecosystem.
This year's proxy voting season will set the stage for the remainder of 2023, with investors and boards seeing debates on issues from climate change to board pay, with the difficult macroeconomic conditions faced by many investors around the globe intensifying the need for faster and richer shareholder communication.
By joining the new digital ecosystem, this will be the perfect opportunity for companies across the globe to enhance their investor relations by pushing for a more transparent and effective form of shareholder democracy, which will benefit boards and shareholders and bring them closer together in the interests of both economies and societies as a whole.
*Jonathan Smalley is co-founder and COO of Proxymity.
© 2023 funds europe