Comment: Why proxy solicitation firms add value

I am embarrassed to admit it, but I was in IR for a long time before I realized proxy solicitation firms even existed. For several more years I didn’t really understand why an IRO would hire one – until I did.  

In my own defense, annual meetings used to be sleepy affairs with legal proceedings, some formal remarks and then cocktail food. Not exactly fraught with drama. Now, as with many other things in IR, they have become a lot more complicated.

‘Companies are increasingly engaging proxy solicitation firms for their annual meetings,’ comments Brad Allen, a senior vice president at Laurel Hill Advisory Group, an independent, cross-border proxy solicitation firm. ‘Advocacy groups and institutional investors continue to be very active – particularly in areas like executive compensation, majority voting and individual director elections – so issuers look to knowledgeable external advisers for assistance.’

While working for a technology company, we hired a solicitation firm to help us get support for a stock option proposal. As the requested replenishment for the plan would put our dilution at 13 percent – a threshold above what many Canadian investors would allow – we knew we needed some help.

First and foremost, we needed help to get the vote in, but we also required assistance for dealing with proxy advisory firms, like ISS and Glass Lewis. These firms play a very important role and influence how many institutional investors vote. I am happy to report that, although it was a bit of a nail-biter, we were successful.

‘Many issuers don’t realize how influential proxy advisory firms have become,’ continues Allen. ‘It can be an uphill battle – although not a lost cause – to get winning support for a resolution they recommend shareholders vote against at an annual or special meeting.’

I asked Brad what IROs can do to help ensure a smooth annual meeting season for their company. These are his top five tips.

1. Keep up to date with corporate governance best practices and trends, and incorporate as much as is practical and applicable for your situation. ISS, Glass Lewis, the Canadian Coalition for Good Governance, Ontario Teachers’ Pension Plan, CalPERS, TIAA-CREFF, BlackRock and many others publish their interpretations of best practices.

2. Consider using a proxy solicitation firm for annual meetings even if there appear to be no issues. In addition to the intelligence and reports you will receive that will provide an accurate analysis of your shareholder base, you will also find a higher vote participation. This is a deterrent against activist (and possibly dissident) shareholders that may try to leverage their influence by targeting companies with a lower vote response.

3.  Know your key shareholders and maintain a regular rapport. There can be some ugly surprises if you don’t keep track of your institutional shareholder base, and it is difficult to interact with shareholders you are not aware of.

4. When approached by an advocacy group, don’t avoid or dismiss. Engage and discuss as appropriate. Reaching agreement in advance and having a proposal withdrawn may be more advantageous than a discussion/debate at the microphone during your shareholder meeting!

5. Consider a direct conduit to the board for key shareholders. Primarily an avenue for top shareholders to feel heard, it also allows the board to independently validate shareholder sentiment.

‘It all adds up to good corporate governance and good investor relations,’ concludes Allen.