Silicon Valley and S&P 100: A Comparison of 2017 Proxy Season Results

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 2017 Proxy Season in Silicon Valley—A Comparison of Silicon Valley 150 Companies and the Large Public Companies of the Standard & Poor’s 100; the complete survey is available here.

In the 2017 proxy season, 138 of the technology and life sciences companies included in the Silicon Valley 150 Index (SV 150) and all 100 of the S&P 100 companies held annual meetings that typically 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”).

Annual meetings also increasingly include voting on one or more of a variety of proposals that may have been put forth by the company’s board of directors or by a stockholder that has met the requirements of the company’s bylaws and applicable federal securities regulations. [1]

This companion supplement to the Fenwick survey, “Corporate Governance Practices and Trends: A Comparison of Large Public Companies and Silicon Valley Companies,” (to be published in the fourth quarter of 2017) provides insight into the results of stockholder voting at annual meetings in the 2017 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 2017 proxy season, similar to 2016. However, in addition to the approximately 11% not represented, an additional 12% were represented via proxy by brokers who did not receive instructions on voting for the bulk of matters for which broker discretionary voting is not permitted. This compares to 13% not represented and 14% broker non-votes in the S&P 100 in the same period.
  • The ranges of representation and voting, though, were somewhat broader in the SV 150 than the S&P 100 (e.g., 50.3% – 98.9% voting in the SV 150, compared to 70% – 94% voting in the S&P 100).

Director Elections

  • The average percentage of support for company nominees was essentially unchanged in the last three years. The S&P 100 average support was approximately 3% higher than their peers in the top 15 companies of the SV 150.
  • The average size of the board slate up for election among the SV 150 was 5.4 directors, compared to 11.6 directors among the S&P 100, with the difference driven by both smaller boards and the relative prevalence of staggered boards in the SV 150. The most common number of directors being elected was two directors in the SV 150, with the number ranging from one to 14 (compared to a range of four to 18 directors among the S&P 100, with 11 most common).
  • In the vast majority of cases, the elections of directors continue to be uncontested. Unlike 2016, when there were no contested elections in the SV 150 (and none in the S&P 100), one of the SV 150 companies and one of the S&P 100 companies had a contested election at its annual meeting in the 2017 proxy season. Cypress Semiconductor’s board slate competed with a slate of two candidates, both of which were ultimately elected (Cypress entered into an 11th hour settlement and two directors resigned when the outcome of the voting was clear). General Motors handily defeated a competing slate of three candidates.

Say-on-Pay

  • Of the 115 companies in the SV 150 that held say-on-pay votes at their annual meetings (98 in the S&P 100), only two companies in the SV 150 lost the vote (compared to two in the S&P 100). In the SV 150, there had been six such failed votes in 2016 and five in 2015.
  • There was a greater average level of opposition in the S&P 100, as say-on-pay opposition reached 15% or more of votes cast (ignoring abstentions and broker non-votes) at 21% of SV 150 companies (compared to 19% of S&P 100 companies). Within the SV 150, opposition reached 30% or more at seven companies (of which six had opposition of 40% or more, including three companies where opposition exceeded 50%). In the SV 150, 12 companies had opposition of 30% or more in 2016, and 10 companies had such say-on-pay opposition in 2015.
  • Most companies recommended annual frequency for say-on-pay voting, which was approved by stockholders. In the rare instances where triennial frequency was recommended, it was also generally approved (three of three in the SV 150 and two of three in the S&P 100).

Other Proposals Voted On

  • Generally, stockholders at larger companies continue to be asked to vote on more matters than at smaller companies. Stockholders voted on 635 matters at 100 annual meetings of S&P 100 companies, compared to 592 matters at the 138 annual meetings held by SV 150 companies. Excluding the director elections, say‑on‑pay (and say-on-frequency) and auditor approval, S&P 100 stockholders were asked to vote on 255 proposals, while SV 150 company stockholders voted on 137 proposals.
  • The increased number of proposals in the S&P 100 was a function of the fact that stockholder proposals are mainly a large company phenomenon (only four stockholder-sponsored proposals were voted on by stockholders outside of the top 50 companies in the SV 150 companies), 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 S&P 100 companies, company-sponsored proposals are significantly more likely to be passed than those sponsored by stockholders.
  • In the SV 150, company proposals were mostly compensation-related (primarily equity plan approvals) (87%); governance (12%); and other (1%). This is compared to the S&P 100, where compensation-related proposals (primarily equity plan approvals also) were 78% governance‑related were 16% and other proposals were 6%.
  • Excluding the director elections, say-on-pay (and say on frequency) and auditor approval voting, stockholders at SV 150 companies voted on 95 company-sponsored proposals, primarily on compensation-related subjects, as well as some governance matters (compared to 50 such proposals at S&P 100 companies).

Shareholder Proposals

  • There were many more stockholder-sponsored proposals in the S&P 100 compared to the SV 150. S&P 100 company stockholders were asked to vote on 205 stockholder-sponsored proposals at annual meetings (compared to 42 such proposals voted on by stockholders of SV 150 companies). Within the SV 150, more than three quarters of stockholder-sponsored proposals were voted on at the top 15 companies.
  • SV 150 stockholder proposals were evenly split between governance- and policy-related topics, with no policy-related proposals being passed and only five of 20 governance proposals passed. In comparison, S&P 100 policy-related proposals comprised 56% of stockholder proposals—where the three proposals of 115 policy-related that passed were environment/sustainability topics—and 34% governance‑related topics (of which, only three of 70 passed).
  • The SV 150 had two stockholder proposals to eliminate dual-class stock structure voting, both of which failed, while the S&P 100 had four such stockholder proposals that also failed.
  • SV 150 stockholder proposals in 2017, however, saw a shift toward policy issues and fewer governance topics compared to 2016. The most common topics for stockholder-sponsored proposals in the SV 150 in 2017 were political/lobbying activities and proxy access (six proposals and four, respectively, none of which were successful), while the most common topic in the S&P 100 related to political/lobbying activities, environmental/sustainability and independent chair (39, 29 and 21 proposals, respectively, only three of which succeeded, all environmental/sustainability topics).
  • In the SV 150, there was an increase in political/lobbying activities proposals (from two to six over the past three years), and Israel/Palestine/Holy Land (from one to three over the last three years), plus an emergence of charitable contributions, along with a decline in environmental/sustainability and human rights and animal testing/welfare.

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 2017 proxy season survey were generally filed with the SEC from July 1, 2016 through June 30, 2017 for the 2017 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: $8.4B or more, $1.6B or more, $380M but less than $1.6B, and $138M but less than $375M. The respective average market capitalizations of these groups are $178.8B, $66B, $3.3B and $1.2B.(go back)

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