The 2015 proxy season is off and running but perhaps a little wobbly this year due to several regulatory and legal decisions that have been handed down since last June. Interestingly, it looks like a larger number of shareholder proposals this year deal with corporate governance issues, which is perhaps to be expected in light of the recent decisions.
The Manhattan Institute gave ValueWalk a sneak peak at its Spring Proxy Monitor report, which examines trends from the last several proxy years and looks ahead to what we can expect this year. The full report will be released tomorrow.
New rules and legal decisions
Affecting this year’s proxy season are three big recent decisions. One is the SEC’s new rules about proxy advisory firms’ duties, which now include disclosing business relationships with companies upon which they are offering voting advice to shareholders.
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The second deals with an April court order that overturned a decision in November. That court order preserved an SEC precedent that would otherwise have been overturned in a case involving Wal-Mart and whether shareholders could vote on how it deals with sales of firearms.
The court ruled that deciding what to sell involves social or policy concerns rather than business concerns. The result would have allowed shareholders to exert pressure through social topic-related proposals if it had been upheld, but the April ruling reverted the issue back to the precedent.
The third was a January order from SEC Chairman Mary Jo White requiring the agency to examine the rule that allows companies to exclude shareholder proposals that directly conflict with one of management’s proposals on the same proxy ballot. The SEC’s Division of Corporate Finance decided that it wouldn’t allow any public companies to exclude any shareholder proposals for that reason for this year.
The 2014 proxy season
So with these new policies and rules in mind, the Manhattan Institute looked at data regarding the types of shareholder proposals for each year and the types of shareholders that are bringing proposals. Last year brought a relatively small amount of shareholder proposals compared to years past, although it was flat with the year before.
The Proxy Monitor indicates that last year there were 305 shareholder proposals made on the proxy ballots of Fortune 250 companies, compared to 306 the year before. That amounted to 1.22 proposals per company in the Fortune 250. (All graphs in this report are courtesy the Manhattan Institute.)
The number is far below the numbers from the years 2006 to 2010 because the Dodd-Frank Act went into effect in 2010. That law ordered companies to hold annual, biennial or triennial shareholder votes about executive compensation. The reason the number of shareholder proposals dropped in 2011 was because that law took one of the biggest issues activists raised off the table by forcing regular shareholder votes on it.
Shareholders not supporting proposals as much
Last year the number of shareholders who voted in favor of shareholder-sponsored proposals continued to decline, with only 4% of proposals receiving majority support. In 2013, 7% of proposals received majority votes.
The Proxy Monitor explains the decline as partly being due to a shift in the mix of the types of shareholder proposals that are being brought to the proxy ballots. The report notes that no proposals to elect all directors annually rather than in staggered terms were brought last year, and these types of proposals typically receive majority support.
The reason for the decline in this type of proposal is partly because more and more public companies are starting to follow this practice anyway, thus eliminating the need to bring these proposals.
Interestingly, the report also indicates that shareholders are becoming less enthusiastic about some types of proposals that once did receive majority support, like proposals requiring that directors be elected with a majority vote rather than a plurality.
Last year’s proxy season focused on social policy
Also 2014 marked a year when social policy concerns like lobbying or political spending were front and center, as there were significantly more of these types of proposals compared to years past. Here’s a look at the percentage of shareholder proposals according to type in the Fortune 250.
You can see a clear shift toward social policy issues last year compared to the total proposals submitted in 2006 through 20014.
Looking at proposal subtypes, the Proxy Monitor also pointed out a noticeable increase in proposals about environmental issues in 2014 compared to the years 2006 to 2014. Political spending was also a hot topic last year, jumping from 11% for the years 2006 through 2014 to 22% in 2014.
So far this year…
The majority of public companies schedule their annual meetings between April 15 and June 15, but some did meet by April 3. Also 78 companies have already filed their proxy materials with the Securities and Exchange Commission. The Proxy Monitor compiled the details on the proxy submissions that have already been made.
Already this year, Fortune 250 companies are receiving on average 0.96 proposals each, which is far below the 2014 full year average of 1.22 but flat with the same early part of last year at 0.98 proposals. The Proxy Monitor did find a greater fraction of proposals involving corporate governance issues this year compared to last year and a smaller percentage of social policy issues this year.
The report also indicated that not only is the number of social policy proposals down overall, but political spending and lobbying and environmental issues are on the decline. Political spending and lobbying proposals fell from 22% in all of last year to 18% in the early part of this year, while environmental proposals fell from 18% in all of last year to 14% in the early part of this year.
The Proxy Monitor notes, however, that most of the big energy companies, which tend to be more prone to environmental proposals, had not filed their proxy materials as of April 3.
What’s next in this year’s proxy season?
During the last two weeks of April, 44 companies are holding their annual meetings, which is double the number that already had their meetings. Seven of the companies have at least three shareholder proposals: AT&T, Boeing, Citigroup, IBM, GE, Honeywell, and Johnson & Johnson. Among the proposals they face are splitting the chairman and CEO roles, environmental concerns, compensation-related issues and others.
For more on this year’s and last year’s proxy seasons, including details on the types of shareholders that are bringing proposals and specifics on which subtypes of proposals are getting majority support, check out the Proxy Monitor‘s full report on Wednesday.