Proxy Season Global Briefing: Shareholder Rights & Corporate Governance

The 2024 proxy season saw shareholder rights and corporate governance standards put to the test. Prioritizing market competitiveness, exchanges and regulators in several countries proposed or implemented reforms that threaten longstanding investor protections; the U.S. saw an increase in accounting and anti-takeover concerns, as issuers that listed during the 2020-2022 SPAC/IPO boom continue to adjust to the public markets; and companies around the world continued to integrate new technologies – and investor expectations – into their annual meeting format.

In the first installment of our Proxy Season Global Briefing, we provide a rundown of headlines and key trends relating to shareholder rights and corporate governance from around the globe. You can also access the full Briefing here, or via the content libraries on Viewpoint and Governance Hub.

Shareholder Rights & Governance Trends

Competition for listings risks a shareholder rights ‘race to the bottom’

• In the face of falling IPO numbers globally and an increase in the number of companies considering listing outside of their country of incorporation, stock exchanges are looking into ways to encourage local companies to list, and remain listed, locally – sparking concern that stock exchanges, legislators, and regulators are willing to sacrifice important shareholder protections.
  • Italy: In February, the Italian parliament approved the Capital Markets Bill (DDL Capitali), which allows companies to offer much stronger loyalty voting rights (generally favoring major shareholders) and to hold shareholder meetings behind closed doors, without shareholder participation, if they amend their articles of association accordingly.
  • United Kingdom: In July, the UK regulator the Financial Conduct Authority (FCA) overhauled its listing rules despite strong and public opposition from the investment community. The new rules remove some important investor protections, such as the requirement of a mandatory sunset clause in dual-class share structures, and compulsory shareholder votes on certain transactions.

U.S. Governance & Bylaw Trends

• Audit committee concerns continue to increase among U.S. companies, including restated financial statements and material weakness(es) in internal audit controls.
• We observed a further decrease in the number of U.S. IPO-related governance concerns, particularly anti-takeover provisions, which had spiked during the 2020-2022 SPAC/IPO boom.
• However, the past proxy season saw an increase in the adoption of poison pills without a shareholder vote, likely driven by the “newer” companies that IPO’d during the recent boom attempting to prevent takeovers in their first few years of operations.
• More companies proposed officer exculpation provisions in article amendments than last year.
• In contrast, bylaw amendments, which often concern removing anti-takeover provisions (such as repeal of classified board structures) and adopting shareholder rights (such as the right to call special meetings) appeared on fewer ballots this year than in 2023.

Meeting Format

As companies adjust to the post-pandemic landscape, the format of shareholder meetings widely diverges. Globally, around three quarters of AGMs allowed for the physical attendance of shareholders.

• Remote/closed door meetings: In a small number of markets, companies are permitted to hold their shareholders meetings behind closed doors, preventing shareholders from attending in person or participating virtually.
  • In countries where this is permitted, this is a commonly utilized option by companies. In India, Italy, and Russia, over 70% of all shareholder meetings were held behind closed doors; four in ten Filipino companies also used this meeting format.
• Virtual shareholder meetings: Meetings that bar in-person attendance while allowing remote, virtual participation became widespread during the pandemic. But not all virtual meetings are created equally; the extent to which shareholders can exercise their rights varies between companies and markets.
  • Virtual meetings were held by over half of all companies in the U.S., Malaysia, Brazil, Thailand, Norway, Saudi Arabia and Egypt; and over one-third of companies in Canada, Germany, the Philippines, South Africa and Greece.
  • The Korean Ministry of Justice is proposing an amendment to the Commercial Act in late 2024 to allow virtual only meetings.
• Hybrid meetings: Meetings that allow both in-person and virtual participation are growing in popularity and account for around one fifth of meetings globally.
  • All Turkish and Kuwaiti companies, and over 80% of companies in China, Taiwan, Indonesia, and Argentina, held their AGMs in this format. In addition, it was the most popular meeting format in Spain, South Africa, Chile, and Greece.
• In-person with a virtual element: In some markets, particularly Japan, France, Finland, and Denmark, companies are increasingly incorporating some sort of virtual element into their in-person AGMs (e.g. a livestream), but stopping short of offering the level of remote participation that constitutes a full hybrid meeting.
• In-person meetings: Still the most popular format, with over half of meetings globally – including over 90% in Japan, Hong Kong, the UK, Ireland, Sweden, France, Switzerland, Vietnam, Belgium, and Mexico.

Many investors are calling for a return to in-person meetings.

• Notably, three of the six shareholder proposals at Canadian TSX 60 companies requesting the reintroduction of a physical element to the AGM received majority shareholder support.

Looking for more?

Check the Glass Lewis blog next week for another installment of our Proxy Season Global Briefing, which will cover executive compensation. You can also access the full Briefing here, or via the content libraries on Viewpoint and Governance Hub.

In the coming weeks, future instalments will cover the board of directors, executive compensation, shareholder proposals and other topics. We will also share more of our proxy season findings, including details of Glass Lewis voting recommendations and analysis, via a series of market-specific Proxy Season Reviews in September and webinars in October.