Proxy Access Proposals Most Likely To Gain Majority Shareholder Support by James R. Copland and Margaret M. O’Keefe – Proxy Monitor

Introduction

As June draws to a close, so does corporate America’s proxy season, when most large publicly traded companies hold annual meetings. At these meetings, corporate shareholders cast votes on ballot items—typically by proxy—considering questions placed on ballots distributed under rules promulgated by the Securities and Exchange Commission (SEC).[3] Among the ballot items under consideration are proposals introduced by shareholders themselves, which may be submitted—subject to substantive and procedural rules—by any owner of equity securities, provided that the equity holder’s shares are valued at $2,000 or more and have been held for at least one year.[4]

Shareholder proposals typically involve corporate governance (procedural questions involving board structure or shareholder voting rights), executive compensation, or social-policy issues. In 2016, almost half of all shareholder proposals involved social-policy issues (Figure 1), and the most introduced types concerned the environment or issues related to companies’ political spending or lobbying (Figure 2).[5] As in 2015, however, the proposals most likely to garner majority shareholder support in 2016 involved “proxy access,” the idea that shareholders should have the right to place their own nominees for director on corporate proxy ballots to compete with boards’ own director nominees (Figure 3).[6] This finding explores the recent push for proxy access by certain shareholders and examines the 2016 proxy access proposals and voting results in more detail.

Proxy Access Proposals

Source: ProxyMonitor.org database
*228 of 250 companies with annual meetings scheduled through the end of June

Proxy Access Proposals

Source: ProxyMonitor.org database
*228 of 250 companies with annual meetings scheduled through the end of June

Proxy Access Proposals

Source: ProxyMonitor.org database
*219 of 250 companies holding annual meetings by June 10
**One simple-majority-voting proposal, submitted by L-3 Communications by John Chevedden, received 67 percent shareholder support
but failed because it was presented as an amendment to the company’s certificate of incorporation, requiring unanimous support.
***Shareholder proposal supported by board of directors

Focus: Proxy Access

Background

In August 2010, the SEC released Rule 14a-11, which would have mandated that publicly traded companies list shareholders’ nominees for director on their corporate proxy ballots, as long as the nominating shareholder had held at least 3 percent of a company’s stock for a minimum of three years.[7] Companies were not required to list a number of nominees totaling more than 25 percent of their board.[8]

The Business Roundtable and other corporate trade associations challenged the rule, and the U.S. Court of Appeals for the D.C. Circuit rejected the rule in July 2011 as “arbitrary and capricious.” The court noted that “investors with a special interest, such as unions and state and local governments whose interests in jobs may well be greater than their interest in share value, can be expected to pursue self-interested objectives rather than the goal of maximizing shareholder value.”[9] The SEC did not appeal the decision but instead approved amendments to Rule 14a-8—the rule for shareholder proposals—to allow shareholders to introduce proxy access rules on their own.[10] (Proxy access proposals had been foreclosed since 2007, as the SEC considered a mandatory proxy-access rule.)

The 2015 proxy season saw the first concerted push to utilize the amended Rule 14a-8. In November 2014, the office of New York City comptroller Scott Stringer—an elected official who oversees the pension-fund assets that underlie retirement benefits for the city’s employees[11]—announced a new “Boardroom Accountability Project” purportedly designed “to ensure that companies are truly managed for the long-term.”[12] Proxy access was to be the initial focus of the project. In 2015, the New York City pension funds introduced shareholder proposals seeking proxy access—with rules paralleling the SEC’s voided Rule 14a-11—at 75 companies,[13] 39 of which are among the 250 companies in the Proxy Monitor database.

In its initial year, Comptroller Stringer’s program met with significant success, in terms of currying shareholder support. Eighteen of New York City’s 22 shareholder proposals seeking proxy access at Fortune 250 companies received majority shareholder support in 2015, as did two-thirds of all such shareholder proposals, compared with 3.5 percent of all other shareholder proposals. By the end of 2015, 109 companies had adopted proxy access rules, according to the comptroller’s office.[14]

Proxy Access Proposals in 2016

Fewer shareholder proposals seeking proxy access were on 2016 proxy ballots than in 2015—25 to date versus 39 in all of 2015. This is not because the New York City pension funds reduced their focus on the issue. In January 2016, the comptroller’s office announced that it had introduced or would be introducing shareholder proposals at 72 companies, only three fewer than in 2015. These included 36 proposals at companies that it had targeted the previous year that had not yet adopted proxy access rules satisfactory to the comptroller’s office and 36 newly identified companies.[15]

Although the New York City pension funds sponsored almost as many proxy access proposals in 2016, only three of their proposals were on proxy ballots among the 228 of the 250 largest publicly traded companies with annual meetings scheduled through the end of June (Figure 4). Many more companies appear to have negotiated with the funds—adopting their own proxy access rules—probably owing to the 2015 shareholder response. The New York City pension funds have withdrawn proxy access proposals at 50 of the 72 companies to which they submitted them, according to their own reported figures.[16]

Proxy Access Proposals

Source: ProxyMonitor.org database
*228 of 250 companies with annual meetings scheduled through the end of June

In the wake of the New York City funds’ 2015 success with proxy access, however, there has been a spate of proxy access proposals introduced this year by “corporate gadflies,”[17] individual investors who repeatedly submit multiple common shareholder proposals at many different companies. Gadfly investor John Chevedden, who has sponsored more shareholder proposals than any other investor across the 11-year history of the Proxy Monitor database, sponsored eight of 25 proxy access shareholder proposals that have made Fortune 250 companies’ proxy ballots to date in 2016. Chevedden had never sponsored a proxy access proposal at any Fortune 250 company prior to 2016, dating back to 2006 (the first year covered in the Proxy Monitor database), suggesting that his enthusiasm for the issue in 2016 may be a result of the ballot item’s success last year. Overall, corporate gadflies have sponsored 79 percent of all proposals to make ballots this year, although that percentage is greatly inflated because New York City–backed proposals have generally been negotiated off ballots by companies that adopted their own proxy access rules.

Voting Results

Twelve of 25 proxy access proposals presented at 2016 annual meetings of Fortune 250 companies through June 10 received majority shareholder support. The average shareholder support for a proxy access proposal in 2016 has been 50.7 percent (Figure 5).

Proxy Access Proposals

Source: ProxyMonitor.org database
*Companies facing proxy-access proposals at annual meetings by June 10
**Shareholder proposal was not opposed by board of directors.

Although the percentage of

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