2013 Proxy Season Review

James C. Morphy is a partner at Sullivan & Cromwell LLP specializing in mergers & acquisitions and corporate governance. The following post is based on the executive summary of a Sullivan & Cromwell publication by Glen T. Schleyer; the complete publication, including footnotes, is available here.

The 2013 proxy season saw a continued high rate of governance-related shareholder proposals at large U.S. public companies, including those calling for declassified boards, majority voting in director elections, elimination of supermajority requirements, separation of the roles of the CEO and chair, the right to call special meetings and action by written consent. As in prior years, many of these governance-related proposals received high levels of support, and a number received majority support from shareholders.

In addition, during the 2013 proxy season, U.S. public companies had, on average, slightly better results on their say-on-pay votes. Large-cap companies, in particular, showed an improved ability to avoid negative results, and most companies that failed say-on-pay votes in 2012 received strong support in 2013. These results reflect companies’ increased efforts to engage with shareholders, understand and anticipate their concerns, and communicate the company’s actions and positions.

Shareholder proposals on social issues (particularly those related to political contributions and lobbying costs) and compensation-related issues (particularly those relating to stock retention and acceleration of vesting upon a change-in-control) also remained common but, as in the past, these proposals generally received far lower support than corporate governance proposals, rarely received a majority vote and served primarily as a vehicle for shareholder activists to focus attention on these issues.

In this memorandum, we:

  • Quantify and discuss various categories of shareholder proposals voted on this season, and highlight important trends and legal developments, including trends in management proposals to implement governance reforms;
  • Analyze the results from 2013 say-on-pay votes, including the greater success of large companies in avoiding problematic vote results;
  • Discuss the primary drivers of negative recommendations by Institutional Shareholder Services on say-on-pay proposals;
  •  Analyze the key reasons that directors of U.S. companies received “withhold” or “against” recommendations from ISS in 2013, and the impact of these recommendations on voting results; and
  • Highlight the increased use by shareholder proponents of new avenues for publicizing their arguments and counterarguments regarding their proposals.
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