Tag: Proxy access


ISS 2016 Proxy Voting Policy

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update by Ms. Gregory, John P. Kelsh, Thomas J. Kim, Rebecca Grapsas, and Claire H. Holland.

Institutional Shareholder Services (ISS) is seeking feedback on policy questions as part of its process for updating its policies for the 2016 proxy season. Corporate issuers should consider communicating company views on proxy voting issues by participating in the survey, which can be accessed here. [1] Feedback is due by September 4, 2015 at 5:00 p.m. ET. Survey results are scheduled to be released in September and draft policy revisions are scheduled to be released for comment in late September or early October.

Survey topics provide an early indicator of potential areas for policy revision. This year’s questions signal that ISS may refine its position on:

  • Proxy access bylaw features
  • Director overboarding
  • Defensive governance provisions adopted pre-IPO or by a board without shareholder approval
  • Sunset provisions for net operating loss poison pills
  • Equity compensation of non-employee directors
  • Use of adjusted metrics in incentive programs
  • Say-on-pay in relation to disclosure by externally-managed issuers
  • Use of financial metrics and financial ratios to assess capital allocation decisions, share buybacks and board stewardship

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Institutional Investors and Corporate Short-Termism

Robert C. Pozen is a Senior Lecturer at MIT Sloan School of Management and a Senior Fellow at the Brookings Institution. This post is based on an article forthcoming in the Financial Analysts Journal. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here), and The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here).

Across the world, a clamor is rising against corporate short-termism—the undue attention to quarterly earnings at the expense of long-term sustainable growth. In one survey of chief financial officers, the majority of respondents reported that they would forgo current spending on profitable long-term projects to avoid missing earnings estimates for the upcoming quarter.

Critics of short-termism have singled out a set of culprits—activist hedge funds that acquire 1% or 2% of a company’s stock and then push hard for measures designed to boost the stock price quickly but unsustainably. The typical activist program involves raising dividends, increasing stock buybacks, or spinning off corporate divisions—usually accompanied by a request for board seats.

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Preliminary 2015 Proxy Season Review

Subodh Mishra is Executive Director for Communications and Head of Governance Exchange at Institutional Shareholder Services. This post is based on an ISS white paper by Patrick McGurn, Special Counsel and Head of Strategic Research and Analysis, and Edward Kamonjoh, U.S. Head of Strategic Research and Analysis. The complete publication is available here.

Momentum is the buzzword that best describes the 2015 Proxy Season in the U.S. market. Some issues, such as proxy access, hit the ground running and emerged as ballot box juggernauts. Other topics, such as calls for independent board chairs and heightened scrutiny of human rights, stumbled and lost ground. Some new ideas, such as hybrid climate change risk initiatives aimed at impacting board deliberations on compensation and CAPEX, failed to catch fire. Despite the rising proxy access tide, E&S proposals swamped their governance and compensation cousins in the pre-season family reunion headcount. However, big submission numbers failed to translate into growing support. Just one environmental proposal managed to win majority support in the year’s first six months.

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Proxy Access: Best Practices

This post is based on a report from the Council of Institutional Investors. The complete publication, including charts, is available here. Related research from the Program on Corporate Governance about proxy access include Lucian Bebchuk’s The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise (discussed on the Forum here), and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

 

The Council of Institutional Investors (CII) believes that proxy access is a fundamental right of longterm shareowners. Proxy access—a mechanism that enables shareowners to place their nominees for director on a company’s proxy card—gives shareowners a meaningful voice in board elections.

CII’s members-approved policy on proxy access states, in part:

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CII on Proxy Access

Elizabeth Ising is a partner and Co-Chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert by Ms. Ising, Lori Zyskowski, and Ronald O. Mueller.

[On August 5, 2015] the Council of Institutional Investors (“CII”), a nonprofit association of corporate, public and union employee benefit funds and endowments that seeks to promote effective corporate governance practices for U.S. companies and strong shareholder rights and protections, published a report titled “Proxy Access: Best Practices” that describes CII’s views on seven provisions that companies typically address when implementing proxy access. The CII report is available here, and was discussed on the Forum here.

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Proxy Access Proposals

Avrohom J. Kess is partner and head of the Public Company Advisory Practice at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Kess, Karen Hsu Kelley, and Yafit Cohn. The complete publication, including footnotes, is available here. Related research from the Program on Corporate Governance includes Lucian Bebchuk’s The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise (discussed on the Forum here), and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

This year was a break-through year for shareholder proposals seeking to implement proxy access, a mechanism allowing shareholders to nominate directors and have those nominees listed in the company’s proxy statement and on the company’s proxy card. It is estimated that over 100 proxy access proposals were submitted to public companies during the 2015 proxy season, 75 of which were submitted by New York City Comptroller Scott Stringer on behalf of the New York City pension funds he oversees. Stringer’s “2015 Boardroom Accountability Project” affected companies in diverse industries and with a range of market capitalizations, but explicitly targeted companies with purportedly weak track records on board diversity, climate change or say-on-pay. The Comptroller’s proposals, which were precatory and identical regardless of the company’s market capitalization, generally called for the right of shareholders owning three percent of the company’s outstanding shares for at least three years to nominate up to 25% of the board in the company’s proxy materials.
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Is Proxy Access Inevitable?

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update by Ms. Gregory, John P. Kelsh, Thomas J. Kim, Rebecca Grapsas, and Claire H. Holland. The complete publication, including footnotes, is available here. Related research from the Program on Corporate Governance about proxy access include Lucian Bebchuk’s The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise (discussed on the Forum here), and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

Efforts by shareholders to directly influence corporate decision-making are intensifying, as demonstrated by the significant increase over the past three years in financially focused shareholder activism and the more recent efforts by large institutional investors to encourage directors to “engage” with shareholders more directly.

Through the collective efforts of large institutional investors, including public and private pension funds, shareholders at a significant number of companies are likely within the next several years to gain the power to nominate a portion of the board without undertaking the expense of a proxy solicitation. By obtaining proxy access (the ability to include shareholder nominees in the company’s own proxy materials) activists and other shareholders will have an additional weapon in their arsenal to influence board decisions.
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2015 Proxy Season Review

Janet T. Geldzahler is of counsel and Marc Trevino is a partner at Sullivan & Cromwell LLP. This post is based on the Summary of a Sullivan & Cromwell publication; the complete publication is available here.

Our 2015 Proxy Season Review summarizes significant developments relating to shareholder proposals to date during the 2015 proxy season. Although shareholder activists pursuing strategic or management changes continue to dominate the headlines, they do not choose to wage those campaigns through shareholder proposals made under Rule 14a-8, which are addressed by the complete publication, choosing instead private or public pressure, and often a threatened or actual proxy contest. Nonetheless, the widespread governance changes brought about through successful 14a-8 proposals have played no small part in the continued growth and success of shareholder activism.

During the 2015 proxy season, proxy access has been the most significant development. Far more proposals have been made and support has been substantially stronger. There have been 82 proxy access proposals to date in 2015, as opposed to 17 in all of 2014. In 2015, shareholders have approved 48 proposals to date (as opposed to five for all of 2014), and the average votes cast in favor have risen to 55% from 33% in 2014. Perhaps most significantly, modestly more restrictive management-enacted proxy access provisions apparently did not deter shareholders from proposing, and, in many cases, winning on the now standard shareholder proposal format of 3%/3-year/25% of board.

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Shareholder Proposal Developments During the 2015 Proxy Season    

Elizabeth Ising is a partner and Co-Chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert by Ms. Ising, Sarah E. Fortt, Madison A. Jones, Gillian McPhee, Ronald O. Mueller, Kasey Levit Robinson, and Lori Zyskowski. The complete publication, including footnotes, is available here.

This post provides an overview of shareholder proposals submitted to public companies for 2015 shareholder meetings, including statistics, notable decisions from the staff (the “Staff”) of the Securities and Exchange Commission (the “SEC”) on no-action requests, and information about litigation regarding shareholder proposals.

I. Shareholder Proposal Statistics and Voting Results

A. Shareholder Proposals Submitted

According to data from Institutional Shareholder Services (“ISS”), shareholders have submitted approximately 943 proposals for 2015 shareholder meetings, which surpasses the total of 901 proposals submitted as of a comparable time last year. For 2015, across four broad categories of shareholder proposals—governance and shareholder rights; environmental and social issues; executive compensation; and corporate civic engagement (which includes proposals regarding contributions to or membership in political, lobbying, or charitable organizations)—the most frequently submitted proposals were governance and shareholder rights proposals (with approximately 352 submitted), largely due to the unprecedented number of proxy access proposals (108 proposals). If not for the dramatic rise in the number of proxy access proposals, proposals on environmental and social issues would have again comprised the largest category of proposals (with approximately 324 submitted), continuing a trend that began in 2014.

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Four Takeaways from Proxy Season 2015

Ann Yerger is an executive director at the EY Center for Board Matters at Ernst & Young LLP. The following post is based on a report from the EY Center for Board Matters.

As the 2015 proxy season concludes, some key developments stand out. Most significantly, a widespread investor campaign for proxy access ignited the season, making proxy access the defining governance topic of 2015.

The campaign for proxy access is closely tied to the increasing investor scrutiny of board composition and accountability, and yet—at the same time—the number of votes opposing director nominees is the lowest in recent years.

Also, the number of shareholder proposal submissions remains high, despite the fact that ongoing dialogue between large companies and their shareholders on governance topics is now mainstream. These developments are occurring against a backdrop of increased hedge fund activism, which continues to keep boards on alert.

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