But environmental and political activity focused proposals still outnumber those advocating separation of CEO/Chair roles and proxy access
It’s early in the proxy season, but it’s already clear that corporate governance-related issues are dominating annual meetings this year, according to the Manhattan Institute's Proxy Monitor report released recently.
As of April 24, a plurality (44 percent) of shareholder proposals filed involve corporate governance issues, while a plurality (47 percent) of last year’s proposals centered on social or policy issues. However, the largest individual topics for proposals so far in 2015 are environmental (41) and political spending and lobbying (36) -- together accounting for 85 percent of all social or policy proposals -- significantly higher than the most popular individual corporate governance topics -- separation of CEO/Chair roles (27) and proxy access (24).
As of April 24, 158 of the 250 largest US companies by revenue, as listed by Fortune magazine and in the Manhattan Institute’s ProxyMonitor.org database, had filed proxy documents with the SEC.
Companies are facing more shareholder proposals on average (1.39 per company) than they have in any year since 2010, and 14 percent more than in 2014., That’s despite a decline in proposals requesting more disclosure about companies’ political spending or lobbying, the most common type of shareholder proposal introduced in each of the prior two years, according to Proxy Monitor.
By now it’s well known that proxy access has captured shareholders’ attention this year. The notion of granting shareholders the ability to nominate directors to the board on the company’s proxy statement has been pushed aggressively by The New York City Comptroller’s office, which have filed such proposals at 75 portfolio companies of the $160 billion New York City pension funds as part of its Boardroom Accountability Project, Proxy Monitor reports.
The beef of pension funds such as those controlled by the New York City Comptroller is that currently large, long-term shareholders are not permitted to nominate directors without a full-blown proxy fight. Proxy access would enable them to have their voices heard by the companies in which they have significant ownership stakes, in hopes of having more input on boards translate to higher returns in their broadly diversified portfolios.
‘The shareholder community has lost confidence in the process. They’ve had it with the lack of strength on boards,’ says John Alan James, a professor at Pace University’s Lubin School of Business and founder and chairman emeritus of the Center for Global Governance Reporting and Regulation. ‘Boards have to upgrade the quality of talent. They should be experts on the issues facing the company, not a Charlie Smith who is sitting on the board for who knows [what reason],’ says James.
Companies and investors opposed to proxy access express concerns that overly permissive proxy access rules could be detrimental to effective board governance.
‘Let’s be clear -- there are circumstances when a board is not performing. It might be comprised of directors who are not carrying their weight, in which case putting more knowledgeable, able, and energized directors in place may well have a positive effect,’ says Richard Steinberg, founder and CEO of Steinberg Governance Advisors. ‘But shareholders should watch out for activists looking to push their own self-serving, short-term agendas, seeking to push cash out the door through dividends, juice the stock price via buy-backs, or spin off business segments.’
Steinberg says activists are teaming up with hedge funds, pension funds or other institutional investors to form powerful coalitions. ISS and other proxy advisory firms are sometimes supportive as well. Steinberg says he’s seen activist nominees who have gained a seat on a board disrupt ‘the effective functioning of a board, where constructive debate is replaced by narrowly focused diatribes.’
This year’s proxy vote results so far show a mixed verdict from shareholders on proxy access resolutions. Of the seven companies to hold votes on the topic as of April 28, four saw shareholders give the proposal majority support,. One of those was Citigroup, whose board also supported the proposal. Two corporations whose proxies included competing shareholder and management proposals on the question, predictably saw split results. At AES Corp, the New York City Comptroller’s proposal garnered 66 percent support while management’s version drew 36 percent. The scenario was reversed at Exelon, where management’s proposed got 52 percent support versus 43 percent support for the Comptroller’s proposal.
Consistent with the trend over the past 10 years, Proxy Monitor notes that most shareholder proposals have been introduced by a small class of shareholders made up of individual investors who repeatedly file similar shareholder proposals at many companies, institutional investors with a social investing agenda or affiliation with a religious group, charitable mission or public-policy organization, and pension funds, primarily state or municipal employee funds private ‘multiemployer’ funds for labor unions such as the AFL-CIO. Also, shareholders overwhelmingly continue to support boards’ executive compensation packages. Only one company failed to win the support of at least 70% of shareholders for its compensation package. The politically conservative Manhattan Institute continues to try to discredit the majority of social or policy-related proposals by asserting they express the views of special interest groups.
As for governance issues, there seems to be growing acceptance of proxy access. More than 12 of the 75 companies targeted by the Comptroller’s office voluntarily agreed to the proposed change. Of the six proposals opposed by management that came to a vote by April 28 (four of which were filed by the Comptroller’s office), half won the support of a majority of shareholders.
Proxy Monitor reports that a significant percentage of investors support some form of proxy access, with each proposal filed at a large company this year receiving at least 39 percent support. (In prior years, many proxy access proposals received significantly less support, probably because most included lower required ownership thresholds or holding periods to be eligible to nominate a director.). At least 33 percent of shareholders at each company has voted against proxy access, except where it has the support of the company’s board.
