The 2018 proxy season saw shareholder proposals focus more on shareholder rights than ever before, but with less success than in past years.
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Investors submitted 138 shareholder rights proposals at U.S.-headquartered companies during the first half of 2018 – the highest number since 2015 – according to data from Proxy Insight (Activist Insight’s sister company). At a quarter of all 2018 shareholder proposals, the category was decidedly more popular than in recent years, coming closest three years ago at 21%.
But even with the soaring numbers, only 12% of proposals in the category passed, down from 28% in 2017 and 40% in 2016.
“Shareholder rights have improved but they are far away from the finish line,” Victor Li, Kingsdale Advisors’ executive vice president of governance advisory, told me earlier this week. “It took a long time to get where we are now and it’s far from the end.”
One cause for the declining support rate may be a lull in the proxy access movement. Li explained that many investors were comfortable with adopting proxy access in the past but are now unwilling to amend the proxy access they previously supported. “It’s mostly over,” he said. “Proxy access is taking a pause.”
Instead, Li said proposals demanding the right to call a special meeting and the right to act by written consent are more likely to be successful – especially since these are issues activist investors care about.
Indeed, so far this year, Proxy Insight data show 17% of the proposals requesting the right to act by written consent passed and 12% of resolutions amending the right to call a special meeting were approved. At L3 Technologies, 86% of shareholders voted for a proposal requesting the right to act by written consent. Meanwhile, 57% of Netflix investors demanded an amendment to the right to call a special meeting. On the flip side, shareholders did not support any amendments to proxy access bylaws.
“It kind of makes sense,” David Whissel, MacKenzie Partners’ director of corporate governance, told me. “[Written consent and special meetings] are related in what they can achieve. They allow shareholders to act outside of an annual meeting context.”
John Chevedden, a frequent filer of proposals, noted that the results understate the level of support for greater shareholder democracy. “There are a lot of shareholders that aren’t happy [with shareholder rights] based on these results,” Chevedden told me in a recent phone conversation. Greater access to corporate governance literature, such as proxy voting adviser recommendations, would prevent small shareholders automatically siding with management, he explained.
In contrast to shareholder rights proposals, environmental and social resolutions saw greater support this proxy season, with 7% of proposals passed year-to-date compared to 3% in 2017, which Li said can be attributed to a shift in focus by institutional shareholders. “There is a trend this year that individual shareholder proponents are still focused on shareholder rights, but institutional investors are focused on E&S,” he said.
However, Whissel speculated that the shareholder rights movement is far from over. He predicted the next step would be pushing companies with smaller market capitalizations to adopt the corporate governance standards of larger corporations. “There are things that are standard at big companies that aren’t adopted in smaller companies,” Whissel noted. “Shareholders might want to flex their muscles in that sense.”
Trian is no stranger to U.K. companies, having played a key role in Kraft’s takeover of British chocolatier Cadbury in 2010.
Nelson Peltz's Trian Partners is said to be raising a U.K.-listed fund to target an unnamed company headquartered in the U.K. or Continental Europe. The $12.5 billion activist is meeting with prospective investors to raise 1 billion pounds ($1.3 billion), with fundraising help from investment bank Numis Securities, according to a Sky News report. Trian will formally launch the new vehicle - known as Trian I - later this year.
Trian is no stranger to U.K. companies, having played a key role in Kraft’s takeover of British chocolatier Cadbury in 2010. The activist’s main strategy is to focus on a company's income statement, although recent targets Pentair and DuPont have announced plans to divest units. A previous study for Activist Insight Monthly found that Peltz's presence on boards led to outperformance of the S&P 500 Index.
The U.S. Department of Justice announced earlier this week that The Walt Disney Company has agreed to divest 22 of its regional sports networks as a condition of its $71.3 billion acquisition of Twenty-First Century Fox’s assets. Fresh from a defeat in its case against AT&T, the DOJ offered the settlement to resolve the harm regulators feared would result from the deal. Says Makan Delrahim, assistant attorney general of the DOJ’s antitrust division:
“American consumers have benefitted from head-to-head competition between Disney and Fox’s cable sports programming that ultimately has prevented cable television subscription prices from rising even higher. Today’s settlement will ensure that sports programming competition is preserved in the local markets where Disney and Fox compete for cable and satellite distribution.”
Article by Activist Insight