How to manage an adverse proxy adviser recommendation

Favorable vote recommendations from the major proxy advisers ISS and Glass Lewis certainly make a company’s AGM easier. When faced with an adverse vote recommendation, however, companies should know there are still options on the table. The window for action is tight, though, so preparing in advance is critical. Issuers can begin thinking through the following steps so they can quickly move into action should there be opposition to any ballot items.

Step 1: Know your shareholder base
The first step is understanding your company’s ownership structure as of the record date. This is crucial because knowing whether your company’s ownership is heavily institutional or retail may determine what strategies to implement in your solicitation efforts.

For example, if your company has a large retail base, an analysis of the non-objecting beneficial owners (NOBOs) list can tell you whether you have enough retail votes to offset against the voting from institutions. A good rule of thumb is a three-to-one ratio, so if you need to offset 10 percent in negative votes, you need to have at least 30 percent represented on the NOBO list. Retail votes generally come in for management at a better than nine-to-one ratio.


Step 2: Determine the level of influence the independent advisory firms have on your institutional shareholder base
Knowing which institutional investors are influenced by ISS, Glass Lewis or their own internal proxy voting guidelines will assist in understanding the level of impact the adverse recommendation may have on the overall voting and help identify who you need to solicit support from.

Although several well-known large institutional investors maintain their own voting guidelines, they may still review the proxy advisory firms’ recommendations before making voting decisions. When both advisory firms recommend against say on pay, for example, significant effort is required to lobby investors – including those that rely on their own internal guidelines – to support the proposal.

Step 3: Consider a supplemental filing to tell your side of the story
Institutional investors’ stewardship teams customarily control the vote decision-making process and may seek input from the investment side of the house (portfolio managers or analysts) on certain matters. Drafting, filing and sharing supplemental information with investors may help counter an ‘against’ recommendation when companies can provide additional context and/or the rationale behind the issue that led the proxy advisory firm to recommend against a proposal.

Articulating the rationale for why shareholders should support the contentious proposal in a public filing has a secondary benefit in that it enables management to present arguments to investors that decline engagement offers before they vote. Companies should argue why supporting the proposal is in shareholders’ best interests rather than focusing on disagreeing with ISS’ or Glass Lewis’ rationale.


Step 4: Assemble your team and engage with investors
Ensure you have the appropriate team of internal and external subject matter experts to navigate and advise you. An effective team often includes representatives from legal, investor relations, sustainability and someone who can articulate compensation practices. The external advisory team should include outside counsel, a proxy solicitation firm and a compensation consultant.

The key to overcoming an adverse proxy advisory recommendation is to have an organized program for engaging with shareholders, helping quell investors’ concerns and lobbying for their support. Preparing in advance of investor calls is critical and should include reviewing their historical voting at your firm, understanding their proxy voting policies and researching their historical track record on similar proposals.

Some investors may request future commitments for which the issuer may need board approval. Identifying large investor votes as they come in is another crucial part of the process to help determine whether strategies need to be adjusted in real time. Companies should closely monitor the vote and consider additional solicitation tools to help maximize support as needed.

Domenick de Robertis is chief strategy officer at Alliance Advisors, where he manages the day-to-day operations of the proxy solicitation group