U.S. Proxy Season Half-Time Update

John Roe is Head of ISS Analytics at Institutional Shareholder Services, Inc. This post is based on an ISS publication by Mr. Roe.

With peak meeting day in the rear-view window and wrapping up the last of the four busiest meeting days of the year today, more and more issuers are reporting their meeting results—and it’s time to take stock of what the numbers are telling us. Through today and among Russell 3000 companies, ISS has issued recommendations on more than 22,000 ballot items at 2,244 companies. And voting results are coming in quickly—we’re calling this proxy season “half-time” because, as of today, just over half—52.4% – of the Russell 3000 has disclosed 2017 shareholder vote results.

Director elections top-of-mind, with thirteen nominees failing to receive majority support

Overall, director election results through mid-season have been strong. The median director across all 10,400 director elections where results are available has enjoyed 98.5% shareholder support. To date, 140 directors have received less than 70% shareholder support, with a total of 375 directors receiving less than 80%—potentially indicating broad dissent.

A total of eleven directors at eight companies have received less than majority support year-to-date. Two S&P 500 firms—AvalonBay Communities and Scripps Networks Interactive—are among those with directors receiving less than majority support. At AvalonBay Communities, the affected director has offered to resign, but the board is not obligated to accept the resignation. According to a company filing, “the Board of Director’s [sic] decision as to whether to accept his offer to resign and the basis for the Boards’ [sic] decision will be disclosed no later than August 16, 2017.” Scripps Networks, on the other hand, has no such policy, and disclosed that the minority-supported director has been elected to serve through next year’s annual meeting.

Say-on-pay off to a strong start, though eight companies have failed to receive majority support

Shareholder support levels for say-on-pay continue to be strong, as more issuers focus on increased shareholder engagement, better disclosure, and improved performance-oriented pay programs. The median support rate across the full Russell 3000 stands at 96.1% so far this year, virtually unchanged from 2016.

However, the news at eight companies’ meetings was not as favorable. These firms failed to reach majority support for their say-on-pay proposal:

  • American Axle & Manufacturing Holdings, Inc.
  • ConocoPhillips
  • Immunomedics, Inc.
  • Microsemi Corporation
  • Nuance Communications, Inc.
  • Senior Housing Properties Trust
  • Sprouts Farmers Market, Inc.
  • Whitestone REIT

A total of 75 Russell 3000 constituents have failed to reach the critical 70% level of support, indicating a broad degree of dissent for executive pay among the shareholder base.

Shareholders strongly favoring annual say-on-pay frequency

Say-on-pay frequency votes, appearing again on ballots in bulk after a 6-year hiatus, are heavily favoring annual votes (as reported in the April 27 edition of Governance Insights). Among the 1,121 say-on-pay frequency vote results cataloged thus far, 1,033—more than 92%—have reflected shareholders’ preference for annual votes.

Thirty-two Shareholder Proposals Received Majority Support

Proxy access continues to show its popularity with shareholders, with 13 majority-supported proposals in the books so far this year. Perennial topics such as requiring a simple majority vote standard, adopting favorable special meeting rights, and enabling shareholders to act by written consent remain popular—but the real change we’re seeing so far this year is in the support level for environmental and social issues.

So far in 2017, majority support was reached for two climate change-related proposals, at Occidental Petroleum and PPL Corporation, and a gender diversity proposal at Cognex Corporation. And, shareholders at Pioneer Natural Resources approved a proposal asking the company to provide an annual sustainability report. These vote results may signal a more active stance among large investors towards environmental and social issues.

Another 800 meeting results likely coming soon

Although more than half of proxy season vote results are now disclosed, quite a few remain. Over the next seven weeks, we expect more than eight hundred more meeting vote results to be published. Stay tuned for ISS’ post-season reports, where the remainder of proxy season results will be analyzed.

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