Advancing Board Declassification in the 2013 Proxy Season

Editor’s Note: Lucian Bebchuk is the Director of the Shareholder Rights Project (SRP), a clinical program at Harvard Law School, and Scott Hirst is the SRP’s Associate Director. Any views expressed and positions taken by the SRP and its representatives should be attributed solely to the SRP and not to Harvard Law School or Harvard University. The work of the SRP has been discussed in other posts on the Forum available here

In joint press releases issued earlier this week, the Shareholder Rights Project (SRP) and each of eight institutional investors it represents announced their collaboration for the 2013 proxy season to encourage 74 S&P 500 and Fortune 500 public companies to move to annual elections. The SRP has submitted shareholder proposals on behalf of the eight SRP-represented investors for a vote at the 2013 annual meetings of 74 S&P 500 and Fortune 500 companies. A list of the 74 companies that received proposals is available here. The proposals urge repeal of the companies’ staggered boards and a move to annual elections.

The SRP and SRP-represented investors have already begun to engage with companies receiving shareholder declassification proposals, and some of the companies receiving shareholder proposals have already agreed to take steps necessary to declassify their boards. It is expected that, as occurred during the 2012 proxy season, the engagement by the SRP and SRP-represented investors will result in negotiated outcomes and moves to annual elections at a large proportion of the 74 companies receiving proposals.

The 2012 work by the SRP and SRP-represented investors led to 48 S&P companies entering into agreements to bring management proposals to declassify; 31 boards of S&P 500 companies have already declassified following such agreements. The 2012 work by the SRP and SRP-represented investors has also led to 38 successful precatory proposals at S&P 500 companies, with average support exceeding 80%. A full description of the 2012 activities and their results will be provided in the forthcoming 2012 annual report of the SRP.

Annual elections are widely viewed as corporate governance best practice. A move to annual elections could make directors more accountable and thereby contribute to improving performance and increasing firm value.

The eight institutional investors that announced their collaboration with the SRP are the Florida State Board of Administration, the Illinois State Board of Investment, the Los Angeles County Employees Retirement Association, the Massachusetts Pension Reserves Investment Management Board, the Nathan Cummings Foundation, the North Carolina State Treasurer, the Ohio Public Employees Retirement System, and the School Employees Retirement System of Ohio. These investors serve more than three million members and manage assets with a total value of more than $400 billion. Additional information about each of the SRP-represented investors is available here.

The media releases by the SRP and each of the eight SRP-represented investors are available at the following links:

Joint press release by the Florida State Board of Administration and the SRP

Joint press release by the Illinois State Board of Investments and the SRP

Joint press release by the Los Angeles County Employees Retirement Association and the SRP

Joint press release by the Massachusetts Pension Reserves Investment Management Board and the SRP

Joint press release by the Nathan Cummings Foundation and the SRP

Joint press release by the North Carolina Department of State Treasurer and the SRP

Joint press release by the Ohio Public Employees Retirement System and the SRP

Joint press release by the School Employees Retirement System of Ohio and the SRP

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