2016 Proxy Season Preview

Shirley Westcott is a Senior Vice President at Alliance Advisors LLC. This post is based on an Alliance Advisors whitepaper. The complete publication, including footnotes, is available here.

The 2016 proxy season is shaping up to be another milestone year for proxy access. The sheer volume of proposals—at close to 200—has well surpassed 2015 levels and continues to spark a tidal wave of corporate adoptions. In addition to the New York City Comptroller’s Boardroom Accountability Project, now in its second year, individual investors have stepped up their proxy access filings while cutting back on some of their longstanding initiatives, such as independent board chairs and special meeting and written consent rights.

This year the proxy access debate has shifted beyond ownership thresholds to ancillary features in company bylaws that impact how usable access rights will be in practice. Efforts by retail investors to curb “problematic” provisions, such as group aggregation limits, quickly fell flat after the SEC concluded that adoption of a 3%/3-year proxy access bylaw, albeit with restrictions, constituted substantial implementation of their shareholder proposals. Nevertheless, secondary bylaw provisions will come into play when investors and proxy advisors evaluate corporate responses to last year’s majority votes.

The heated presidential election is mobilizing shareholder campaigns on social issues ranging from income inequality to campaign finance and climate change. Climate-related proposals are on the upswing in the wake of the United Nations’ Paris Agreement that commits nearly every country to reduce greenhouse gas (GHG) emissions. Activists are furthering their strategy by integrating climate risk into resolutions on compensation and political spending, and by challenging mutual funds whose public positions on combating climate change diverge from their proxy voting practices on the issue.

Money managers are also coming under fire this year for routinely backing outsized CEO pay packages. Other novel proposals in the compensation lineup touch on reducing gender pay gaps, linking CEO pay to executive diversity, and eliminating the impact of share repurchases from compensation performance metrics. But not all new initiatives will make it to ballots. Social activists’ efforts at minimum wage reform and Qube Investment Management’s revival of auditor rotation proposals have largely been omitted as ordinary business.

Finally, after reaching a record high in 2015, campaigns by activist hedge funds may recede this year, dampened by turbulent markets and portfolio losses. In keeping with recent trends, settlements with insurgents will likely continue to prevail over full-fledged proxy fights.

In short, this will be a challenging proxy season in a number of respects. Highlights of some of the key developments and shareholder proposals are discussed in more detail in our full report, available here.

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