The 2014 proxy season has certainly been a busy one, but apparently shareholders aren’t usually in agreement with the small minority of investors who bring proposals to companies’ proxy ballots. What’s more, investors who hold just a small amount of stock can cause corporations (and their investors) to have to spend money to deal with proposals that a majority of shareholders won’t even suppor
The Manhattan Institute will release its latest Proxy Monitor report next month, but they allowed ValueWalk a sneak peak at the results of their research beforehand.
Authors James R. Copland and Margaret M. O’Keefe said in their report that this year it looks like shareholders are much less supportive of proposals brought by other shareholders than they were in the past. This year a majority of shareholders supported just 4% of shareholder proposals. Last year, 7% supported them.
A decade ago, no one talked about tail risk hedge funds, which were a minuscule niche of the market. However, today many large investors, including pension funds and other institutions, have mandates that require the inclusion of tail risk protection. In a recent interview with ValueWalk, Kris Sidial of tail risk fund Ambrus Group, a Read More
This year’s percentage was also the lowest recorded in the ProxyMonitor.org database, which goes back to 2006. And within the Fortune 250, a majority has supported only ten proposals. Only seven of those proposals were supported against the recommendation of companies’ boards of directors.
Small minority dominate the proxy process
Again this year, they found that a very small group of investors dominated the shareholder proposal process. In fact, only three investors and their families brought a full one-third of all shareholder proposals this year. They are John Chevedden, father and son William and Kenneth Steiner and husband and wife James McRitchie and Myra Young.
Copland and O’Keefe reported that investors focused on “social, religious, or public-policy orientation” brought 28% of this year’s shareholder proposals. Most of them came from “social investing” funds.” Labor-affiliated investors sponsored 24% of this year’s shareholder proposals, although they were less common this year than last year. The authors say this was mainly because there was less activity from “private multiemployer plans” like the AFL-CIO.
They also found that nearly half of this year’s shareholder proposals were about “social or policy concerns.” However, shareholders aren’t backing these proposals, for the most part. The authors say that a shareholder majority rejected 135 of the 136 proposals that fell into this category. The one exception was a proposal about animal welfare that was supported by the company’s board.
This isn’t a new trend either. Between 2006 and 2014, not a single one of the 1,141 “social or policy” proposals made for Fortune 250 companies has been supported by a majority of shareholders against the recommendation of the board.
According to the report, corporate political spending and lobbying were again the “most regularly introduced” proposals this year, with 22% of all proposals falling into it. However, an average of 80% of shareholders rejected these proposals, which is in line with the results from previous years.
Between 2006 and 2014, none of these proposals made at a Fortune 250 company has been supported by a shareholder majority against the recommendation of the board.
ISS supports more proposals than investors
On average, the study authors also say that influential shareholder advisory firm Institutional Shareholder Services was “much more likely to support shareholder proposals than the media investor.” They found that ISS usually recommends that investors separate the CEO and chairman role.
The firm also usually supports cumulative voting rules for board members to “empower minority shareholder blocks” and more disclosure about corporate political spending. These sorts of issues were only supported by a shareholder majority 0% to 4% of the time.
The authors say they will be paying close attention to see whether ISS is affected by the new SEC rules about proxy advisors and / or the firm’s new ownership.
The key observation Copland and O’Keefe drew from their research this year is that the “ordinary” investor doesn’t appear to be served by the shareholder proposal process. They also point out that dealing with shareholder proposals can be expensive for corporations.
Fortune 250 companies tended to file a petition with the Securities and Exchange Commission to exclude shareholder proposals from their proxy ballots 46% of the time. In addition, investors who hold just $2,000 worth of company stock are able to impose the cost of dealing with these proposals on all other investors.
“These costs can recur year after year under the SEC’s loose resubmission rules, at least assuming that ISS can be persuaded to support the proposal,” they concluded in their report. “The SEC’s current rules governing the shareholder-proposal process are thus inconsistent with the agency’s stated goals of efficiency, competition, and capital formation.”