2023 Proxy Season: Record Proposals, Sliding Support

Geralyn Ritter
Executive vice president of
external affairs and ESG for
Organon and the author of
Bone by Bone

The 2023 proxy season has wound down and brought with it a pulse check on contentious issues top of mind for certain shareholders. While shareholder proposals are an imperfect vehicle for tracking shifts in the political, economic, and cultural climate in which we do business, the topics are important to follow. They represent everything from serious governance trends to niche political issues. At either end of the spectrum, companies ignore them at their own peril.

This year, shareholder proposals were at a record high, totaling 682 between Jan. 1 and May 31 at Russell 3000 companies, according to Institutional Shareholder Services (ISS), with 36 in the pharmaceutical industry. However, median support for all proposals decreased from 31% to 25% in 2023, reports ISS, with support for pharma proposals declining even further to 20% in aggregate from 2022 to 2023.

Why the decline in support? It is likely attributed to three main factors:

• Proposals have become increasingly prescriptive, with the proponent seeking to usurp the role of management.
• Companies are listening and have, in fact, responded in good faith to past proposals with changes that addressed concerns.
• “Anti-ESG” proposals, while growing in number, generally attract single-digit levels of support.

Turning more specifically to trends in the pharma sector, we’ve looked at the last two years of proposals across the top 10 US companies in the industry. Let’s dig in.

Top issues

Though shareholder resolutions are generally non-binding and most don’t pass (only 30% have reached a final vote during the Jan. 1 through May 31 period since 2019, according to ISS). But even a 30% vote in favor of an issue is considered a strong message that the company should consider its business impacts. While voting results varied greatly in pharma this year, support for 13 out of 36 proposals managed to exceed this 30% threshold, our independent review found.

Consistent with previous years, most shareholder proposals for pharma were related to social issues at 64%, followed closely by governance issues at 36%, also according to company data. Notably, not one environmental proposal from major pharma companies went to a vote. The most popular topic focused on access to medicine and pricing with specifics of these proposals ranging from patent exclusivity and IP licensing to anticompetitive practices. Threaded throughout was the common theme of enhancing access, with these proposals attracting a meaningful level of support.

While not a new concern, the evergreen nature of these issues warrants careful attention. Even after the incredible industry response to the COVID-19 pandemic, the need to explain the innovative R&D business model and its benefits for patients is paramount.

Beyond these votes and the political arena, ESG rating providers—e.g., MSCI, ISS, Sustainalytics, and S&P Global—also place significant emphasis on access and affordability in their ranking of ESG performance, indicating its relevance is far-reaching.

Transparency in political and lobbying activities, with eight of 36 proposals voted on in 2023, ranked as the second most popular issue facing the industry. A number of these proposals attracted significant levels of support (more than 30%), indicating this recurring concern with the industry’s political advocacy remains highly salient and voluntary transparency initiatives are well-advised.

Of the 14 proposals that exceeded the 30% threshold, half fell under the transparency in political lobbying efforts and the impact of patent exclusivity subcategories. The remainder were less pharma-specific and related to general governance practices, such as the separation of chairman and CEO roles or to shareholder rights, such as the right to call a special meeting or act by written consent.

What’s next?

Even as the US Securities and Exchange Commission continues to consider and evolve its approach to reviewing shareholder proposals, most governance experts expect this mechanism will remain valuable to small investors and single-issue interest groups. Larger investors rarely file such proposals but recognize the power of their votes on ESG issues.

Pharma companies must continue to devote resources to the handling of shareholder proposals, pre-emptive stakeholder engagement, and post-submission engagement as an important mechanism for reputation and issue management.