Our Proxy Voting Annual Review 2022 shows that, globally, the consumer cyclical sector (49) saw the most social shareholder proposals in the 21/22 proxy season.

Which sector do you expect to see the most next proxy season?

33% - Consumer cyclical (again)
55% - Technology
6% - Real estate
6% - Other

Earlier this week, I was speaking at Corporate Secretary Magazine's ESG Forum in New York. Here are some of the key talking points I found interesting:

• Investors are finding it harder and harder to manage money for liberal and conservative asset allocators. Not many surprises there – the withdrawals from asset managers associated with ESG by pension funds in states with significant energy industries is getting into the billions of dollars, so serious money. It’s also helping to spur the adoption of pass-through voting, which I wrote about last week, but whether these schemes can depoliticize ESG alone remains to be seen.  
   
• This year's spate of so-called "anti-ESG" proposals, which seek to force companies into admitting that workforce diversity schemes are just another form of racism, among other things, also got a hearing. There was a widespread agreement that such proposals are easy to identify and haven't got much support to date (according to Insightia's Voting module, such proposals received 2% average support in the proxy season just finished) but also concern about the impact on a company of receiving proposals on a single issue from opposite ends of the spectrum. And the practice of cloaking the meaning of conservative proposals in the language and framing of the much more common progressive versions is generating support for companies being required to name shareholder proponents on their proxy statements, as most but not all issuers do.
   
• Rebecca Corbin gave a tour-de-force presentation on how companies should be pitching their strategic choices to investors. Among some of the highlights: while share buybacks are the number one capital allocation priority for some companies, others may be better served by keeping hold of cash for another downward turn in the market; investors should aim to keep net debt to 2x EBITDA or below; and leadership remains the foremost characteristic by which investors judge their portfolio companies.
   
• One panel tackled director assessments. Most attendees suggested their board assessments were usually conducted in writing but a few speakers made a pitch for verbal assessments, which are easy to turn into a two-way conversation and less prone to disclosure in litigation.
   
• Companies are accepting that the universal proxy card will put individual directors under more scrutiny and seem to be thinking more carefully about matrix-based assessments, despite proxy voting advisers saying there will be no major change to the framework of how they assess proxy contests. That's a sign of how deep activism preparedness has become imbedded in public companies. 

I'll also be speaking at the ESG Integration Forum, organized by Corporate Secretary's sister publication, IR Magazine, on December 2. Learn more here.

U.K. boards are finding themselves under pressure to report on diversity beyond gender and ethnic considerations.

In a recent Institute of Directors (IoD) policy paper, the stewardship organization made a series of recommendations for the U.K. government, aimed at bringing about the "most favorable conditions for businesses and directors to flourish."

The paper urged the government to mandate public reporting and target-setting in relation to the representation of LGBTQ+ and disabilities on the boards of FTSE 350 companies. As regards to employees, IoD also sought the introduction of mandatory disability workforce reporting for employers with upwards of 250 staff.

Given the "success" of the Hampton-Alexander and Parker reviews, which set gender- and ethnicity-related board representation targets for U.K. companies, respectively, implementing similar targets regarding disability and LGBTQ+ representation is a logical next step, IoD said.

Legal & General Investment Management (LGIM), NEI Investments, and Schroders were among the many to support both proposals, LGIM stating in its voting rationale that a diverse board is "more likely to perform over the long term."

Under current reporting regulations, all U.K.-listed companies must disclose in their annual reporting whether they have met certain diversity targets under a "comply or explain" basis, but these requirements relate exclusively to gender and racial diversity. Companies must report on progress made in attaining a minimum of 40% female representation on the board, whether at least one senior board position is being held by a woman, and if at least one board member is from an ethnic minority background.

It's feasible to envision this policy being expanded to encompass diversity more broadly. Back in July 2021, when the ruling was open to public comment, the regulator noted it was considering expanding disclosure policies "to consider broader aspects of diversity, including sexual orientation [and] disability."

Reporting on these broader considerations may even become enforced in the foreseeable future, with the U.K. Financial Conduct Authority (FCA) noting in its November 3 annual review of corporate governance reporting that there is a notable "lack of clarity on company diversity policies."

In the regulator’s assessment of 100 randomly chosen FTSE 350 and Small Cap companies, only 30 companies referred to disability under their diversity plans, while LGBTQ+ was also an area of "low attention," despite the FCA encouraging issuers to report about "all forms" of diversity.

"Not all companies are reporting meaningfully across all levels and we want to raise those standards to ensure that transparency levels are raised," Maureen Beresford, head of corporate governance at the FCA said in a recent podcast discussing the report's findings.

With broader diversity considerations already actively on the minds of U.K. regulators, sustained pressure from investors and corporate governance advocacy groups will only place this higher up the FCA's agenda.

One need not look far to see that LGBTQ+ and disability representation is climbing up the investor agenda. A coalition representing $2.8 trillion in assets, led by New York State Comptroller Thomas DiNapoli and Oregon State Treasurer Tobias Read, has annually called on companies globally to become "disability-inclusive," to ensure they are "better-positioned" to manage risks and align with shareholder values.

A growing number of shareholder proposals seeking diversity reporting are also specifying disclosure of corporate practices relating to disability and LGBTQ+ representation, as seen earlier this year at Wells Fargo's and Amazon's annual meetings. The proposals went on to win 11% and 13% support, respectively, according to Insightia's Voting module.

"We have seen an increase in diversity among corporate boards and, as long-term investors, we have been part of the movement pushing for those changes," New York City Comptroller, Brad Lander, told me in an interview this week.

"Shareholders continue to call for stronger action and many of the world's largest companies have acknowledged that it should be at the center of their business. To realize the benefits of diversity, there must be a focus on including both disability and LGBTQ+ representation as a part of their strategy."