Tag: Board declassification

What the Allergan/Valeant Story Teaches About Staggered Boards 

Arnold Pinkston is former General Counsel at Allergan, Inc. and Beckman Coulter, Inc. This post comments on the work of institutional investors working with the Shareholder Rights Project, (discussed on the Forum here, here, and here) which successfully advocated for board declassification in about 100 S&P 500 and Fortune 500 companies.

Until March 2015, I was the Executive Vice President and General Counsel of Allergan, Inc. For much of 2014 my job was to address the hostile bid launched by Valeant and Pershing Square to acquire Allergan.

With that perspective, I followed with interest the debate surrounding staggered boards, and in particular the success of institutional investors working with the Shareholder Rights Project in bringing about board declassification in over 100 S&P 500 and Fortune 500 companies. From my perspective, the debate did not seem to fully reflect the complexity of the relationship between a company and its shareholders—i) that each company and each set of shareholders is unique; ii) that destaggering a board can affect the value of companies positively, negatively or hardly at all; and iii) that shareholders, each from their own unique perspective, will be searching for factors that will determine whether annual elections are in their own best interests—not the company’s. For that reason, I respectfully offer my thoughts regarding the campaign to destagger boards.


2014 Proxy Season Review

The following post comes to us from Bridget Neill, Director of Regulatory Policy at Ernst & Young, and is based on an Ernst & Young publication by Ruby Sharma and Allie M. Rutherford. The complete publication is available here.

Nearly 40 investor representatives shared with us their key priorities for the 2014 proxy season. We review the developments around these topics over the 2014 proxy season through shareholder proposal submissions, investor voting trends, proxy statement disclosures and behind-the-scenes company-investor engagement.

Key Developments in the 2014 Proxy Season

Activist investors are becoming more active and influential: Nearly 150 campaigns by hedge fund activists were launched in just the first half of this year. Both companies and long-term institutional investors are learning to navigate this changing landscape.


ISS Recommends Shareholders Withhold Votes for 6 Ashford Trust Directors

The following post comes to us from JJ Fueser, Research Coordinator at UNITE HERE.

UNITE HERE proposals to opt out of Maryland Unsolicited Takeover Act have received resounding support from shareholders of Ashford Hospitality Prime.

Over the past two years, activist shareholder UNITE HERE, the hospitality workers’ union, has been winning corporate governance reforms at lodging REITs, which are nearly all incorporated in Maryland.

Several proposals ask boards to opt out of Maryland statutes which provide a range of anti-takeover tools. The Maryland Unsolicited Takeover Act (MUTA), for example, allows boards to classify at any time without shareholder approval.

UNITE HERE has argued that without opting out of MUTA—and requiring shareholder approval to opt in—a Maryland REIT has not truly declassified its board. The proposals to opt out of Maryland’s anti-takeover statutes have gained traction, with six proposals withdrawn after full or substantial implementation.


Florida SBA 2013 Corporate Governance Annual Summary

Editor’s Note: Michael McCauley is Senior Officer, Investment Programs & Governance, of the Florida State Board of Administration (the “SBA”). This post is based on an excerpt from the SBA’s 2013 Corporate Governance Report by Mr. McCauley, Jacob Williams and Lucy Reams. Mr. Williams and Ms. Reams are Corporate Governance Manager and Senior Corporate Governance Analyst, respectively, at the SBA.

The Florida State Board of Administration (the “SBA”) takes steps on behalf of its participants, beneficiaries, retirees, and other clients to strengthen shareowner rights and promote leading corporate governance practices among its equity investments in both U.S. and international capital markets. The SBA adopts and reports clearly stated, understandable, and consistent policies to guide its approach to key issues. These policies are disclosed to all clients and beneficiaries.

The SBA supports the adoption of internationally recognized governance practices for well-managed corporations including independent boards, transparent board procedures, performance-based executive compensation, accurate accounting and audit practices, and policies covering issues such as succession planning and meaningful shareowner participation. The SBA also expects companies to adopt rigorous stock ownership and retention guidelines, and implement well designed incentive plans with disclosures that clearly explain board decisions surrounding executive compensation.


Proxy Voting Analytics (2009-2013)

Matteo Tonello is managing director of corporate leadership at The Conference Board. This post relates to a report released jointly by The Conference Board and FactSet, authored by Dr. Tonello, Melissa Aguilar, and Thomas Singer of The Conference Board. The Executive Summary is available here. For details regarding how to obtain a copy of the full report, contact matteo.tonello@conference-board.org.

While the number of shareholder proposals filed at U.S. public companies continued to increase this year, management has been less successful at obtaining permission from the Securities and Exchange Commission (SEC) to exclude from the voting ballot new types of investor demands.

The finding is discussed in the latest Proxy Voting Analytics (2009-2013), recently released by The Conference Board in collaboration with FactSet Research. The study examines data from more than 2,400 annual general meetings (AGMs) held at Russell 3000 and S&P 500 companies between January 1 and June 30, 2013. Historical comparisons with findings from the last four proxy seasons are also made.

Data analyzed in the report includes:

Key Issues From the 2013 Proxy Season

The following post comes to us from Ted Wallace, Senior Vice President in the Proxy Solicitation Group at Alliance Advisors LLC, and is based on an Alliance Advisors newsletter by Shirley Westcott. The full text, including tables and footnotes, is available here.

During this year’s annual meeting season, issuers experienced better outcomes on say on pay (SOP) and shareholder resolutions, underpinned by a high degree of engagement and responsiveness to past votes. With SOP in its third year, companies addressed many of investors’ and proxy advisors’ pivotal compensation concerns, which was reflected in a modest improvement in average SOP support and proportionately fewer failed votes.

Similarly, although the volume of shareholder resolutions on ballots was nearly comparable to the first half of 2012, average support declined across many categories and there were 27% fewer majority votes (See Table 1). This was due in large part to corporate actions on resolutions that are traditionally high vote-getters, such as board declassification, adoption of majority voting in director elections, and the repeal of supermajority voting provisions, resulting in the withdrawal or omission of the shareholder proposal. Indeed, issuers made a conscious effort to avoid the prospect of majority votes, mindful of potential fallout against directors by proxy advisory firms. Beginning in 2014, ISS will oppose board members who fail to adequately address shareholder resolutions that are approved by a majority of votes cast in the prior year, while Glass Lewis is scrutinizing board responses to those that receive as little as 25% support (see our January newsletter).


2013 Proxy Season: A Turning Tide in Corporate Governance?

The following post comes to us from Robert A. Profusek, partner focusing on mergers and acquisitions at Jones Day, and is based on a Jones Day publication by Mr. Profusek, Lyle G. Ganske, and Lizanne Thomas.

The 2013 proxy season has ended, and many public companies are in a period of relative calm on the governance front before the season for shareholder proposal submissions begins in a few months. This post reflects on some of the highlights of the past proxy season and a few events and trends that may shape the 2014 season.

Declining Influence of Proxy Advisory Firms

Events in the 2013 proxy season have signaled that the era of blind adherence to proxy advisory firms’ recommendations may be waning, at least to some degree. JPMorganChase’s success in defeating a highly contested independent board chair proposal for the second year in a row provides some evidence that the influence of proxy advisory firms is decreasing, at least as to non-core governance issues outside the executive compensation area. The JPMorganChase shareholder proposal won the support of only 32.2 percent of the votes cast at its 2013 annual meeting, despite Glass Lewis’s and ISS’s recommendations in favor of the proposal. A Wall Street Journal article relating to the vote even included this gem of a quote from a VP of proxy research at Glass Lewis: “Our power is probably shrinking a bit.” Would that it were so—investors’ reclaiming the power of the shareholder franchise would be good news for corporations and their boards, and for investors as well.


2013 Proxy Season Review

James R. Copland is the director of the Manhattan Institute’s Center for Legal Policy. The following post is based on a memorandum from the Proxy Monitor project; the complete publication, including footnotes, is available here.

Corporate America’s “proxy season” has now wrapped up: most of America’s large publicly traded companies hold annual meetings to vote on business, including shareholder proposals, between April 15 and the end of June. Among the 250 largest U.S. public companies by revenues that constitute the Manhattan Institute’s Proxy Monitor database, 214 had held meetings by July 1.

In 2013, companies faced more shareholder proposals, on average, than in 2012, but the average support for proposals fell and a smaller percentage of proposals received the support of a majority of shareholders. The most commonly introduced type of proposal, as in 2012, involved companies’ political spending or lobbying; but as in 2012, none of these proposals passed, and shareholder support for this class of proposals held steady at a modest 18 percent.

This post discusses these results in more detail. First, the post summarizes 2013 shareholder proposals, including their rate of introduction and a breakdown of shareholder proposal types and shareholder proposal sponsorship. Next, the post examines voting results. Finally, the post looks in more depth at the most common class of proposal: that involving political spending or lobbying.


Proxy Voting Analytics (2008-2012)

Matteo Tonello is managing director of corporate leadership at the Conference Board. This post relates to a report released jointly by The Conference Board and FactSet and authored by Dr. Tonello, Melissa Aguilar, and Thomas Singer of the Conference Board. For details regarding how to obtain a copy, contact matteo.tonello@conference-board.org.

The effects of say on pay on shareholder engagement, the introduction of proxy access proposals, and the resurgence of board declassification resolutions were the principal themes of the last proxy season and are expected to continue to take center stage in 2013, according to a report issued today by The Conference Board in collaboration with FactSet Research Systems Inc.

Proxy Voting Analytics (2008-2012) analyzes data on voting by shareholders of U.S. companies that held their annual general meetings (AGMs) in the January 1-June 30 period during the last five years. Aggregate data on shareholder proposals, management proposals, and proxy contests is examined and segmented based on market index (whether the Russell 3000 or the S&P 500) and 20 business industry groups.

The report is supplemented with an appendix offering detailed recommendations from Conference Board experts for companies facing situations of shareholder activism.

Data analyzed in the report includes:


Contributing to the Declassification of 21 S&P 500 Companies: Final Tally of the Results of the ACGI’s 2011 Work

Editor’s Note: Lucian Bebchuk is Professor of Law, Economics and Finance at Harvard Law School, and Scott Hirst is a Lecturer on Law at Harvard Law School; both were affiliated with the American Corporate Governance Institute (ACGI) during the period discussed in this post. Their earlier posts about the work of the ACGI are available here. Subsequent work in connection with declassification proposals was undertaken in 2012 by the Shareholder Rights Project (SRP), and has been discussed in posts available here.

This post provides a final tally of the results from the work of the American Corporate Governance Institute (ACGI) during 2011. As described in more detail below, this final tally shows that the 2011 work of the ACGI and ACGI-represented investors contributed to board declassification at 21 S&P 500 companies – about 15% of the S&P 500 companies that had a staggered board as of the beginning of 2011. [1]

During the 2011 proxy season, the ACGI worked on behalf of two institutional investors — the Florida State Board of Administration (SBA) and the Nathan Cummings Foundation (NCF) — in connection with the submission of shareholder declassification proposals for presentation at the 2011 annual meetings of certain S&P 500 companies. The ACGI assisted the SBA and the NCF with selecting companies for proposal submission, designing proposals, engaging with companies, negotiating and executing agreements by companies to bring management declassification proposals, and presenting proposals at annual meetings.


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