Five key trends for the 2023 AGM season


In light of new regulations, increasingly vocal shareholders and challenging market conditions, the 2023 proxy season is expected to be eventful. Companies would do well to consider the following five key trends as they prepare for their upcoming AGMs.


Increased scrutiny of executive remuneration

In the context of current inflation levels, investors expect restraint when it comes to executive remuneration. The number of contested remuneration reports is likely to increase on 2022 and companies operating in sectors with a large, low-paid workforce will be under particular scrutiny. Guidance from the ISS and the Investment Association calls for any adjustments to executive director pay to be lower than those for the wider workforce. However, feedback from governance teams suggests many companies are trying to push through more ambitious increases in pay, which don’t always correlate with improvements in company performance. How companies are responding to the cost-of-living crisis will be a key part of the narrative ahead of upcoming AGMs.


Growing dissent against board directors

Boards are more accountable and responsible than ever before on a measurable scale, with the complexity of board skills expected to match the complexity of board concerns. When dissatisfied with governance issues or a company’s broader strategic direction, investors are increasingly willing to vote against board committee chairs and members. The variety of reasons for the votes against director re-election is also on the rise, from board diversity to oversight of climate-related issues. This increasing level of dissent is a great opportunity for activists, so reputational risks are high.


Rising focus on overboarding

In volatile market conditions, the board’s ability to govern effectively is particularly important. Board directors need to dedicate an appropriate amount of time to exercising their fiduciary responsibilities towards each company they govern. Whilst proxy advisors have defined what this means in theory, in practice, there’s a lot of room for nuance. In the absence of a universally adopted definition of overboarding, it is down to companies to ensure they are disclosing adequate, well-tabled maps that show director engagement across all the companies they govern, and to engage proactively with investors to explain why and how this works in practice.


Spotlight on board diversity in terms of ethnicity and race

Investors are looking for increased engagement regarding progress on different aspects of diversity, with particular focus on ethnic diversity. In the UK context, disclosure requirements are on the rise. From this year, companies listed on the London Stock Exchange will need to disclose information about ethnicity and gender equality in their annual reports. The target, set by the Parker Review, is for every FTSE 250 company to have at least one board director from a minority ethnic background by December 2024. Companies that have not achieved this will need to explain how they are tackling the issue, with third party evaluation of board skills and composition an increasingly useful tool.


Continued demand for climate resolutions

Following softer than expected support for some of the more ambitious climate-related resolutions put forward by both companies and investors in 2022, the question is: what are investors looking for in 2023? Most asset managers, who themselves are facing growing regulatory pressure in this area, are expected to remain committed to their ESG principles. As such, companies will be expected to present ‘SMART’ targets and explain what they really do, why they are meaningful and who they are meaningful to. In this context, materiality really is key. Knowing your shareholder base, what they care about and how they are likely to vote will help avoid any unwelcome surprises once resolutions have been filed.


With choppy waters potentially ahead, close collaboration between IR teams and the corporate secretariat is critical to facilitating proactive engagement with portfolio managers, their governance teams and proxy advisors, and ensuring disclosures effectively address key issues.