2017 Proxy Season Review

Glen T. Schleyer is a partner at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication by Mr. Schleyer.

The complete publication (available here) summarizes significant developments relating to the 2017 U.S. annual meeting proxy season, including:

  • Decline in traditional governance proposals. Proposals on traditional governance reforms (destaggering the board, adopting majority voting in uncontested director elections, eliminating supermajority voting provisions, and adopting special meeting rights) continued to decline in frequency. There are simply fewer large companies that have not adopted these practices already, and more smaller companies are doing so as well, especially with respect to majority voting.
  • Continued acceptance of proxy access leads to fewer proposals. Fewer proposals to adopt new proxy access provisions came to a vote in 2017, largely because most companies that received such a proposal reacted by adopting a proxy access bylaw with terms consistent with market practice (i.e., 3% ownership for three years, director cap of 20% of the board but no less than two, and a group limit of 20 shareholders). The proposals that did come to a vote generally passed.

  • Attempts to amend proxy access terms were unsuccessful. Nearly half of the proxy access proposals that were voted on in 2017 sought to amend previously adopted proxy access bylaws, often to remove or loosen restrictions on group size. These have all failed.
  • Continued focus on independent chair. Proposals for the board to have an independent chair remained common and, as in the past, generally received significant support from shareholders (25-40%). However, once again none of these proposals passed, confirming that shareholders are generally satisfied that a sufficiently empowered lead independent director can offset having a combined CEO and chair role.
  • Greater focus on board diversity. Board diversity—in particular, the inclusion of women on boards—received significant attention in 2017, including through institutional investor policies, shareholder proposals, company proxy disclosure and non-binding state legislative resolutions. This is likely to be a topic of continued focus in 2018.
  • Social/political proposals remain common, but rarely pass. Social policy proposals were dominated by those relating to environmental issues and to political contributions and lobbying, with proposals on gender pay equity on the rise. These proposals continue to be common, but rarely pass, though environmental proposals have increased in both number and support levels, and several relating to climate change passed at energy companies.
  • Near elimination of compensation-related proposals. Executive compensation-related shareholder proposals declined to a negligible amount, continuing a trend that began once mandatory say-on-pay became the main focus of executive compensation concerns.
  • “Withhold” or “against” votes for directors. Our analysis of negative recommendations on uncontested director elections by Institutional Shareholder Services demonstrates that new ISS policies to vote against directors at newly public companies with adverse governance provisions and at companies where shareholders cannot amend the bylaws yielded many negative recommendations, but did not have a very significant impact on the election of directors. As in past years, directors who are seen as insufficiently responsive to a prior shareholder vote and directors with poor attendance suffer the greatest impact from a negative ISS recommendation.
  • Move toward annual say-on-pay votes. Most companies had their second advisory vote on say-on-pay frequency in 2017, and the preference for annual votes over biennial or triennial votes was further solidified.
  • Continued strength on say-on-pay. Public companies continued to perform strongly on say-on-pay, with support levels averaging over 90% and less than 1% of companies getting less-than-majority support. Our analysis of ISS negative recommendations on say-on-pay supports the continued importance of a pay-for-performance model, including performance standards that are clearly explained and deemed sufficiently rigorous by ISS.
  • Broad shareholder support for equity compensation plans. Very few companies, and no S&P 500 companies, failed to get shareholder approval for an equity compensation plan, and overall support levels continued to average around 90%.

The director elections discussed in the complete publication are uncontested elections at annual meetings. For a discussion of proxy contests and other shareholder activist campaigns, see our post 2016 U.S. Shareholder Activism Review and Analysis.

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The complete publication, including footnotes, is available here.

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