Proxy Access: New Sense Of Nuisance – Significant Difference of Opinion from top Investors
Proxy Insight recently contributed an article to The Activist Investing Annual Review 2016, produced by Activist Insight in association with Schulte Roth & Zabel, on the topic of proxy access. The article contained key insights, including:
That shareholder proposals in favor of implementing proxy access rules were generally popular. Proposals advanced by the New York City Comptroller (NYC) that went to a vote received an average 55% support, while proposals by other shareholders received an average of 48% in favour.
It already looks like 2016 will be a busy year, with NYC putting forward 72 new proposals and the California State Teachers Retirement System (CalSTRS) targeting their top 40 investments.
Not all investors agree on proxy access, with the largest investors in equities showing considerable variation in approach, as evidenced by the table below:
Proxy Insight Managing Director Nick Dawson commented “Rarely does a governance topic cause such differences of opinion as proxy access has, with big shareholders themselves divided about its merits; some concerned about unintended consequences and others worried about costs.”
Proxy Access: New Sense Or Nuisance?
Proxy access took the governance world by storm in 2015, but opinions are still divided on whether it is worth fighting for.
The overview is staggering. In the past year, the number of S&P 500 companies with a proxy access bylaw adopted reached 117, or 21% of the index. Many would be forgiven for thinking that this rule’s time has come, and its dominance of the market assured.
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Much that has been written on proxy access is along these lines. Clare Payn, Head of Corporate Governance in North America for Legal & General, an insurer, suggests the issue is now central to how companies advertise their approach to investor relations. “We now see this issue as best practice, along the lines of majority voting and declassification of boards, and believe that all companies should implement access for shareholders as soon as practicable,” she says.
Access to grind
Yet behind these admittedly remarkable statistics lies considerable tension. Rarely does a governance topic cause such differences of opinion as proxy access has, with big shareholders themselves divided about its merits; some concerned about unintended consequences and others worried about costs.
Few can see the bylaws being used in great numbers, yet for the California State Teachers’ Retirement System (CalSTRS), a large pension fund and enthusiastic backer of proxy access, that is beside the point. “CalSTRS believes proxy access would serve as a useful tool that would enable shareholders to hold corporate boardrooms accountable,” says Aeisha Mastagani, a corporate governance portfolio manager there. “While we believe proxy access will be rarely used, the CalSTRS position is that it is an important shareholder right that should be in place at all companies.”
On the issue of activists exploiting the changes, Marc Weingarten, co-Chair of Schulte Roth & Zabel’s global Shareholder Activism Group, is skeptical. “Activists want their own proxy statements and proxy cards, they don’t want just a short paragraph in the company’s proxy statement,” he says. “The proof that companies aren’t afraid of proxy access is the number of companies adopting it.”
Runners and riders
Shareholder proposals on proxy access came thick and fast in 2015, and foremost among the proponents was New York City Comptroller, Scott Stringer. NYC made 75 proposals during 2015, of which 66 went to a vote. Then there were regular governance campaigners Jim McRitchie and John Chevedden, who accounted for the bulk of a further 25 proposals.
What’s notable is that management teams continued to oppose proxy access, even in the face of solid support. Of NYC’s 75 targets, nine reached some sort of agreement before a vote, one company supported the motion (Apache), and another took no position (Republic Services). Yet the remainder continued to recommend shareholders vote down proposals—not wholly successfully.
The average level of support for these resolutions (excluding Apache and Republic Services) was an impressive 55%, with 41 companies receiving support of greater than 50% and five winning over 70%.
Interestingly, it seemed to make little difference whether NYC acted alone or in concert. A number of other organizations, such as Illinois State Board of Investment and the City of Philadelphia Public Employees Retirement System joined with Stringer on certain proposals—albeit with little effect on the voting results.
Other proposals were not so successful, however. While two of McRitchie’s proposals won support from Hain Celestial and Citigroup, 23 companies recommended voting against, with mixed results. Two received more than 70% of votes cast in favor (St. Jude Medical with 72.5%, and Kohl’s Corp with 73.2%), and ten received the support of a majority of shares.
Two proposals were withdrawn, but the average level of support was an impressive 48.3%.
What to expect from 2016
If companies thought they would be spared further proxy access resolutions in 2016 they will likely be disappointed. CalSTRS has already announced plans to engage with their 40 largest equity holdings on the subject, and will file shareholder proposals if necessary.
“Some companies and their lawyers are getting creative regarding provisions in the bylaws, and we wanted to see a useable rule adopted,” says Anne Sheehan, Director of Corporate Governance at the pension fund. “As with our previous engagements, the idea is to write a letter first and build dialogue, rather than just lobbing a proposal across the table.”
Nor is NYC done with the issue. It is understood to be focusing on 72 companies—36 new names and 36 of the 2015 list that failed to implement a suitable bylaw.
An innovation designed to increase directors’ accountability to shareholders has already pitted contrasting views in opposition to each other. It remains to be seen whether an accommodation of sorts will be reached.
About Proxy Insight
Founded in 2013 by Nick Dawson and Nick Arnott, Proxy Insight provides the most comprehensive global information source on proxy voting, detailing the voting activity at shareholder meetings for over 27,000 global issuers. In addition the proxy voting guidelines of top investors are covered in over 800 Corporate Governance profiles. A free trial of the database and a monthly newsletter subscription is available on request. If you would like more information about this topic, please contact Nick Dawson at +44(0)20 7788 7772 or email [email protected].