Proxy Access Momentum in 2016

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. This post relates to a Sidley Austin report by Ms. Gregory, John P. Kelsh, Thomas J. Kim, Rebecca Grapsas, and Claire H. Holland. 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).

Through the collective efforts of large institutional investors, including public and private pension funds, and other shareholder proponents, shareholders are increasingly gaining 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), shareholders will have yet another tool to influence board decisions. Approximately 40% of companies in the S&P 500 have now adopted proxy access. We expect that proxy access will become a majority practice among S&P 500 companies within the next year.

As a follow-up to our previous reports on proxy access, the complete publication reflects recent developments on the topic, including:

  • changes to institutional investor policies on proxy access, such as Vanguard lowering the ownership threshold for likely support from 5% to 3%,
  • the willingness of the Securities and Exchange Commission (SEC) to grant no-action relief on the basis of “substantial implementation” to companies seeking to exclude proxy access proposals so long as the 3% for 3 years ownership threshold in the company’s proxy access bylaw is consistent with the proposal, and even if the bylaw otherwise deviates from the proposal’s terms (e.g., nominating group size limit or the percentage of proxy access board seats),
  • voting results on proxy access proposals so far in 2016 and
  • the steady pace of proxy access bylaw adoptions and the convergence toward standard key parameters (most commonly 3% for 3 years for up to 20% of the board (at least 2 directors) with a nominating group size limit of 20).

We have also updated the Appendix which highlights, on a company-by-company basis, various terms of proxy access provisions adopted by 241 companies in 2015 and so far in 2016, including the terms adopted by 123 companies since we published our last Sidley Corporate Governance Report on proxy access on January 14, 2016.

The complete publication is available here.

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