Companies are getting back control of their companies

Companies are getting bolder in their battles to beat back proposals requiring them to disclose more about everything from environmental policies to AI, as shareholder support for governance changes shows new signs of waning in 2024.

So far this year, Apple (AAPL), Tyson Foods (TSN), and Applied Materials (AMAT) have defeated proposals that would have required the giants to disclose more about diversity, ESG, labor practices and AI policies.

Exxon (XOM) is suing two activist investor groups — Arjuna Capital and Follow This — after the organizations tried to bring a shareholder vote on whether the oil giant should disclose greenhouse gas emissions.

And the Securities and Exchange Commission watered down a new set of climate-risk disclosure rules after companies complained about the costs of compiling indirect emissions. The Chamber of Commerce last week filed a petition asking the Fifth Circuit Court of Appeals to block the rules the SEC did pass.

The bolder action by big businesses comes as political heat around environmental, social, and governance (ESG) concerns and diversity, equity, and inclusion (DEI) policies mount in an election year.

Former President Trump has promised to banish ESG “forever,” while a top Trump ally has called DEI “bigotry” against white men.

Republican-led states are also pushing companies to rescind race-based employee quotas, piggybacking on the Supreme Court’s decision in 2023 to strike down race-based admission policies at Harvard University and the University of North Carolina.

Big asset managers and Wall Street banks that own giant slugs of stock in major American companies are contributing to the retreat.

The latest retrenchment came last month when financial giants JPMorgan Chase (JPM), State Street (STT), and Pimco all pulled out of Climate Action 100+, a coalition formed in 2017 to encourage companies to reduce their emissions.

BlackRock (BLK), the world’s largest money manager, also ended its US involvement with the group.

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Dialing back

A key test of these issues is taking place this spring, as companies collect votes on a variety of proposals seeking changes to corporate governance. So far this year, stockholders are saying ‘no’ to many of them.

Apple shareholders roundly rejected a collection of ethics- and employment-centered initiatives, turning down a labor-backed proposal from AFL-CIO Equity Index Fund (AFLCIX) that suggested the iPhone maker report how it uses AI technology in its business operations.

Other failed initiatives pushed for Apple to report more detailed information on racial and gender pay gaps and the evenness of its application of human rights policies around the globe.

Even a proposal that sought to protect conservative views from discrimination lacked enough support to pass. It would have required Apple to disclose potential risks from its omission of “viewpoint” and “ideology” discrimination in its employment policy.

Big money managers that serve as the largest stockholders in big, publicly-traded companies are shying away from any proposals likely to be viewed as activism, according to Lindsey Stewart, Morningstar’s director of investment stewardship research.

That includes proposals both for and against ESG- and DEI-type policies.

“Certainly asset managers have dialed down their enthusiasm to back these kinds of proposals over the last few years,” Stewart said.

The apparent swing in favor of less disclosure may be an indication that shareholders are growing tired of trying to influence corporate behavior.

“It’s still too early to tell,” said Stewart, referring to whether this year will show a statistically significant shift.

A new phase

There have been some other notable company victories so far in 2024.

At Tyson Foods, shareholders voted against a third-party audit to monitor its worker population while the meat producer faces claims its employment of minors violated US labor laws.

At Applied Materials, shareholders of the semiconductor materials manufacturer voted against proposals to report on quantitative median and adjusted pay gaps across race and gender.

One greenhouse gas emissions proposal has won shareholder approval so far this year, according to ISS-Corporate. That came at Jack In the Box (JACK), where 56% of shareholders voted to require disclosure of emission reduction targets.

There could be another explanation for the waning support: New reporting mandates from regulators and US exchanges are starting to satisfy investors.

A lot of new rules have been passed this decade requiring more information from companies. In 2020, the SEC expanded human capital disclosure rules to require that companies disclose risks and resources associated with their employee headcount.

The next year in 2021, the SEC made it easier for investors to get climate change and social issues on corporate voting ballots while Nasdaq made it mandatory for listed companies to disclose diversity.

Starting in 2025, the SEC’s new climate rules will require companies to reveal their carbon footprint in an effort to help investors evaluate how climate change may impact businesses’ bottom line.

“Those regulations and standards are starting to hit,” Stewart said, “so I think [shareholders] are feeling less need to push quite so hard on them because there are actual requirements out there that are prompting companies to make those kinds of disclosures.”

No matter the reason, overall support for ESG-focused resolutions is falling and will likely continue, according to a recent Morningstar analysis.

“I think we’re entering a phase moving away from the investor activism side of things into a phase where there’s written down regulations and standards,” Stewart said.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

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