Large-Scale Governance Reforms in S&P 500 Companies

Posted by the Harvard Law School Forum on Corporate Governance & Financial Regulation, on
Wednesday, February 13, 2013
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Editor’s Note: Lucian Bebchuk is the Director of the Shareholder Rights Project (SRP), Scott Hirst is the SRP’s Associate Director, and June Rhee is the SRP’s Counsel. The SRP, a clinical program operating at Harvard Law School, works on behalf of public pension funds and charitable organizations seeking to improve corporate governance at publicly traded companies, as well as on research and policy projects related to corporate governance. 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 its 2012 Annual Report released today, and in joint press releases issued today with institutional investors it represents, the Shareholder Rights Project (SRP) provided detailed information about the outcomes of its work with SRP-represented investors during 2012, the SRP’s first full year of operations.

As discussed below, major results obtained during 2012 include the following (for complete details on all outcomes see the Annual Report):

  • 48 S&P 500 companies (listed here) entering into agreements to move toward declassification;
  • 38 successful precatory proposals (listed here), with average support of 82% of votes cast;
  • Over 60% of successful precatory proposals by public pension funds and over 30% of all successful precatory proposals; and
  • 42 board declassifications (listed here), reducing the number of classified boards among S&P 500 companies by one-third.

Expected Impact by End of 2013: As a result of these outcomes and the ongoing work of the SRP and SRP-represented investors, it is estimated that a majority of the 126 S&P 500 companies that had classified boards at the beginning of 2012 will have moved toward annual elections by the end of 2013.

• 48 Agreements to Declassify: Negotiated outcomes were obtained with 48 S&P 500 companies (listed here) — over half of the companies receiving shareholder proposals from SRP-represented investors in 2012 — whereby the companies agreed to bring management proposals to declassify.

• 38 Successful Proposals: Precatory declassification proposals brought by SRP-represented investors passed by substantial margins (support averaged 82% of votes cast) at the 2012 annual meetings of 38 S&P 500 companies (listed here). The 38 companies where proposals passed represent 95% of the companies where such proposals went to a vote.

• Contribution to Successful Shareholder Engagement: The precatory proposals by SRP-represented investors represented 61% of all successful proposals by public pension funds in 2012, and 32% of all successful precatory shareholder proposals in 2012.

• 42 Board Declassifications: A total of 42 S&P companies (listed here) declassified their boards during 2012 following 2012 or 2011 agreements with SRP-represented investors or successful 2012 precatory proposals. The 42 companies whose boards were declassified during 2012 represent one-third of the 126 S&P companies that had classified boards as of the beginning of 2012.

• Benefits of Declassification: Annual elections are widely viewed as corporate governance best practice. Board declassification and a move to annual elections could make directors more accountable and thereby contribute to improving performance and increasing firm value.

• SRP-Represented Investors: The institutional investors currently working 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.

• SRP Work: The SRP provides SRP-represented investors with a range of services, including assistance in connection with selecting companies for proposal submission, designing proposals, submitting proposals on behalf of represented investors, engaging with companies, negotiating and executing agreements by companies to bring management declassification proposals, and presenting proposals at annual meetings.

The SRP’s Annual Report is available at the following link:

2012 Annual Report of the Shareholder Rights Project

Press releases concerning 2012 outcomes by the SRP and SRP-represented investors are available at the following links:

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 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

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