Results of the 2016 Proxy Season in Silicon Valley

David A. Bell is partner in the corporate and securities group at Fenwick & West LLP. This post is based on portions of a Fenwick publication titled Results of the 2016 Proxy Season in Silicon Valley; the complete survey is available here.

In the 2016 proxy season, most of the technology and life sciences companies included in the Silicon Valley 150 Index (SV 150) and the public companies in other industries included in the Bay Area 25 Index (BA 25) held annual meetings that included voting for the election of directors, ratifying the selection of auditors of the company’s financial statements and voting on executive officer compensation (“say-on-pay”). Increasingly in Silicon Valley, annual meetings also include voting on other matters, such as proposals in compensation, governance, policy and other general business issues. All told, stockholders voted on 535 matters at the 140 annual meetings held by SV 150 companies (compared to 88 matters at 22 annual meetings of BA 25 companies). [1]

This companion post to the Fenwick survey, Corporate Governance Practices and Trends: A Comparison of Large Public Companies and Silicon Valley Companies (discussed on the Forum here), provides insight into the results of stockholder voting at annual meetings in the 2016 proxy season, [2] allowing directors, executives and practitioners to analyze company results with relevant peers.

Significant Findings

Among the key findings are:

Annual Meeting Participation

  • An average of approximately 89% of shares of SV 150 companies was represented in person or by proxy at company annual meetings during the 2016 proxy season. However, in addition to the approximately 11% not represented, an additional 13% were represented via proxy by brokers who did not receive instructions as to voting for the bulk of matters for which broker discretionary voting is not permitted (“broker non-votes”). This compares to 10% not represented and 8% broker non-votes in the BA 25 in the same period.
  • The ranges of representation and voting were somewhat broader in the SV 150 than the BA 25 (66%–100% voting in the SV 150, compared to 58%–90% voting in the BA 25).

Director Elections

  • The average size of the board slate up for election among the SV 150 was 5.5 directors, compared to 9.1 directors among the BA 25. The most common number of directors being elected was 3 directors in the SV 150, with the number ranging from 1 to 14 (compared to a range of 3 to 15 directors among the BA 25, with 9 most common).
  • In the vast majority of cases, the elections of directors were uncontested. Unlike 2015, where there were two contested elections in the SV 150 (and none in the BA 25), none of the SV 150 companies or BA 25 companies had a contested election in the 2016 proxy season.

Say-on-Pay

  • Of the 113 companies in the SV 150 that held say-on-pay votes at their annual meetings (19 in the BA 25), six companies in the SV 150 lost the vote (compared to none in the BA 25).
  • Say-on-pay opposition reached 15% or more of votes cast (ignoring abstentions and broker non-votes) at 20% of SV 150 companies (compared to 21% of BA 25 companies). Within the SV 150, opposition reached 30% or more at 12 companies (of which eight had opposition of 40% or more, including the aforementioned six companies that lost the vote).
  • Among the SV 150 companies, 13 companies held say-on-pay frequency votes, and of those, the board recommended annual frequency at twelve companies and triennial frequency at one company.

Other Proposals Voted On

  • Generally, stockholders at larger companies continue to be asked to vote on more matters than at smaller companies. Of the 535 proposals put forward among SV 150 companies, 233 of the proposals were made by the top 50 companies, compared to 150 for the mid 50 and 152 for the bottom 50. The increased number of proposals at larger companies was due in part to stockholder-sponsored proposals as well as the fact that larger companies are significantly more likely to hold say-on-pay votes annually.

Company Proposals

  • In both SV 150 and BA 25 companies, company-sponsored proposals are significantly more likely to be passed than those sponsored by stockholders.
  • Excluding the director elections, say-on-pay (and say-on-frequency) and auditor approval voting, stockholders at SV 150 companies voted on 86 company-sponsored proposals, primarily in compensation-related subjects, as well as some governance matters (compared to 11 such proposals at BA 25 companies, which were more evenly split between compensation-related and governance matters).

Shareholder Proposals

  • Stockholder-sponsored proposals were mainly focused on governance matters or policy issues and generally unsuccessful, in both SV 150 and BA 25 companies.
  • SV 150 company stockholders were asked to vote on 43 stockholder-sponsored proposals at annual meetings (compared to 15 such proposals voted on by stockholders of BA 25 companies). Within the SV 150, more than three-quarters of stockholder-sponsored proposals were voted on at the top 15 companies.
  • The most common topics for stockholder-sponsored proposals in the SV 150 were proxy access and political/lobbying activities, while the most common topic in the BA 25 was regarding environment/sustainability.

In a number of instances the report also presents data showing comparison of the top 15, top 50, middle 50 and bottom 50 companies of the SV 150 (in terms of revenue), [3] allowing for a more carefully tailored view of the activity and results as they are impacted by company size or scale, as well as more relevant comparison to peers.

The complete publication is available here.

Endnotes

1Director elections at each company were treated as a single matter, irrespective of the number of directors being elected.(go back)

2To be included in the data set for a particular “proxy season,” the definitive proxy statement for a company’s annual meeting generally must have been filed by the company with the Securities and Exchange Commission (SEC) during the twelve months ended June 30 of that year (i.e., the proxy statements included in the 2016 proxy season survey were generally filed with the SEC from July 1, 2015 through June 30, 2016 for the 2016 proxy season), irrespective of when the annual meeting was actually held (the annual meetings were usually held about two months following the filing of the proxy statement).(go back)

3The top 15, top 50, middle 50 and bottom 50 companies of the SV 150, include companies with revenue in the following respective ranges: $6.7B or more, $1.6B or more, $400M but less than $1.5B, and $181M but less than $400M. The respective average market capitalizations of these groups are $152.3B, $54.4B, $3.3B and $979M.(go back)

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