Adapting to the shifts in corporate governance across Europe in 2024
Shareholder activism is a mounting force in Europe, with investors increasingly wielding their influence to shape the governance and performance of companies. In the first five months of 2024, the 18 environmental and social (E&S) proposals that came to a vote garnered an average support of 17.9%, a stark contrast to the 6.2% and 11.5% in 2021 and 2022, respectively. This upsurge in E&S proposal backing underscores the intensifying investor focus on corporate sustainability and transparency.
According to our recent report, Diligent Market Intelligence: Corporate Governance in Europe 2024 produced in association with White & Case and Alliance Advisors, regulatory developments governing environmental, social and governance (ESG) disclosures are prompting institutional investors to seek enhanced environmental- and human capital-related reporting from portfolio companies.
A growing number of European companies are also increasing CEO pay in a bid to enhance competitiveness, prompting investors to closely scrutinize "say on pay" plans, while shareholder activists are focusing on value creation opportunities in the U.K. and Germany.
“Evolving reporting requirements are prompting investors to ensure companies are set up for success and prepared to comply,” said Josh Black, Editor-in-Chief of Diligent Market Intelligence, at Diligent. “At the same time, companies must also remain focused on appropriately incentivizing executives and strengthening company performance.”
Shareholder activism in Europe: A renewed focus on ESG and executive pay
Where should boards and investors be placing their focus in 2024? Our report outlines the core themes that are crucial to success, which include the impending implementation of the Corporate Sustainability Reporting Directive (CSRD), apprehensions about executive remuneration and the mounting significance of ESG considerations.
Regulatory developments prompt renewed focus on ESG disclosures
The evolving regulatory landscape, particularly with the implementation of the CSRD, is a significant driver behind the increased support for E&S proposals. Investors are now more than ever seeking assurance that companies are not only prepared to meet these new requirements but are also proactive in their environmental and social disclosures. Notably, proposals aimed at enhancing climate disclosure have been particularly prevalent in the energy and financial services sectors, reflecting targeted investor interest in these high-impact areas.
Competitiveness concerns bolster CEO pay, driving investor pay revolts
As European companies strive to close the pay gap with their U.S. counterparts, there has been a noticeable increase in CEO compensation. However, this rise has led to heightened scrutiny from investors, evidenced by a slight decrease in support for "say on pay" proposals. In 2024, these proposals averaged 92.3% support, a dip from 94% four years prior. This trend underscores the need for companies to maintain a balance between competitive compensation and shareholder expectations.
Activists eye opportunities in the U.K. and Germany
Shareholder activism is gaining momentum, particularly in the U.K. and Germany, where undervalued stock prices have made companies attractive targets. In the U.K., activists are increasingly pushing for strategic sales to unlock value, while in Germany, calls for board refreshment are becoming more common. These movements highlight a strategic shift towards more aggressive tactics by activists aiming to enhance shareholder value.
As shareholder activism continues to ascend in Europe, companies must be primed to interact with activists and confront their grievances. They should also proactively enhance their ESG performance and executive compensation practices to diminish the risk of becoming a target for shareholder activism.
To learn more, download our detailed report and sign up for our webinar, where we will explore the main insights of the report in depth.
