Following our annual review of Wellington’s Global Proxy Voting Guidelines, we have made a few notable changes. As always, the updated guidelines are intended to help Wellington’s investment teams vote proxies in the best interests of our clients. As the name suggests, our guidelines are not intended to be rules that investors must follow. Each investment team’s votes can align with their investment philosophy based on the issues they deem important to their portfolios. The three main updates relate to overboarding, climate disclosures and shareholders’ right to call a special meeting.
Excessive time commitments by directors, or excessive time, can distract board members and lead to oversight failures. We carefully consider this issue when voting by proxy, balancing the benefits and risks of concurrent engagements. Although being an outside board member can help directors provide valuable insights to the companies they serve, the added workloads and stress can become liabilities, especially in times of of crisis.
Although each case is unique, we apply standards to assess potentially excessive commitments. We generally considered executives with two non-board roles exceeded and non-executives with five roles total exceeded. For executives and non-executives, starting in 2022, we have double-counted the roles of chair of the audit committee and chair of the compensation committee, given the significant time commitments required to perform these functions.
Based on new evidence and feedback gathered during our many engagements over the past year, we are adjusting our overtaking approach ahead of the 2023 voting season, refining the approach in two key ways. First, we expect to be able to generally support executives in just one additional role, even when it comes to chairing an audit committee. We can always exercise our discretion when a combination involves two particularly demanding roles, such as a CEO assuming the role of chairman of an external board, especially in a large, complex organization.
Second, we update the roles considered for double counting in our overflow matrix. We are adding the role of Chairman of the Board and removing the role of Chairman of the Compensation Committee. Evidence indicates that performing the role of Chairman of the Board of Directors requires the greatest commitment of time and involves potentially greater and varied workloads in times of stress, whereas the role of Chairman of the Compensation Committee is generally less time-consuming, with a more predictable workload. We will continue to double count the role of Audit Committee Chair.
Change of key: Beginning in 2023, we generally plan to support serving executives on an external board, even if the additional role involves chairing the audit or compensation committee. For non-executives, we will double count the roles of Chairman of the Board and Chairman of the Audit Committee, but not Chairman of the Compensation Committee. We will always consider executives with three or more roles and non-executives with five or more roles exceeded.
These changes reflect our desire to follow an evidence-based approach to voting and to engage with companies to support change where it aligns with our fiduciary duty. The update should result in fewer votes against management for overreaching. In general, we expect companies to improve disclosure of how they manage directors’ time commitments and detail how they aim to prevent directors from being overburdened.
As a company, we aim to assess, monitor and manage the potential effects of climate change on our investment processes and portfolios. Proxy voting is a key climate risk management tool and is part of our stewardship process.
At a minimum, we expect companies to disclose their Scope 1 and Scope 2 greenhouse gas (GHG) emissions, as investors need this information to understand transition risk exposure. While no single metric captures this exposure, in general, the higher a company’s overall GHG emissions, the higher its transition risk. Calculating and reporting Scope 3 emissions remains challenging for companies in all sectors, but Scopes 1 and 2 are quantifiable and comparable, with established measurement practices. For now, we will focus our vote on Scopes 1 and 2, while continuing to commit to Scope 3.
As we announced in last year’s guidelines, we reserve the right to vote against the re-election of board chairs of companies in the MSCI World Index, Climate Action 100+ and those assessed by the Transition Pathway Initiative (TPI) if:
- a company does not disclose scope 1 and 2 emissions
- management has not committed to do so in the coming year
- we believe emissions intensity is financially important
Recognizing that the risks associated with the climate transition will affect businesses in both developed and emerging markets, and that stricter disclosure standards are expected to come into effect around the world, we plan to expand our position of director accountability to a wider range of businesses over time.
Change of key: Starting in 2024, we will expand our GHG emissions voting approach to include directors of large-cap companies in emerging markets. During 2023, we plan to engage with affected companies to better understand their transition plans, ahead of the 2024 change.
Last year, shareholder proposals regarding the right to call a special meeting accounted for a significant portion of overall proposals from US corporations. We believe this is an important right for shareholders, as it aligns the interests of management and shareholders and avoids entrenched management teams.
While continuing to vote on a case-by-case basis, we plan to support proposals to introduce this right for companies that do not have it. We also expect to vote in favor of proposals aligned with what we consider fair representation. Where current ownership thresholds are 15% or more, we will generally support lowering them; where a proposal calls for a minimum ownership threshold of 10%, we will generally support it as well. In all cases, we consider the composition of a company’s shareholder base and the general responsiveness of management to shareholder concerns. We will continue to engage with companies on our views and expectations.
Change of key: From 2023, we will generally support proposals lowering the ownership threshold required to call a special meeting when the current level exceeds 15% and proposals requesting a minimum threshold of 10%.
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1Scope 1 emissions are emitted during regular operations at sites directly controlled by the company, including the use of natural gas for heating, generators and company vehicles. Scope 2 emissions are generated indirectly from the electricity and heat used to power company sites, so Scope 2 emissions are dependent on the generation mix of the electricity grid on the different sites. Scope 3 emissions are generated indirectly throughout the value chain, from upstream activities such as purchased goods and business travel and downstream activities such as the use of sold products.(flip)