Shareholder Voting in the United States: Trends and Statistics on the 2015-2018 Proxy Season

Matteo Tonello is Managing Director at The Conference Board, Inc. This post relates to Proxy Voting Analytics (2015-2018), a Conference Board report authored by Dr. Tonello and developed in partnership Rutgers Center for Corporate Law and Governance and in collaboration with FactSet and IRGS Analytics.

A study by The Conference Board and Rutgers Center for Corporate Law and Governance (Rutgers CCLG) finds that voting support on proposals regarding companies’ sustainability practices has been steadily rising over the last few years, even though such proposals are still rarely approved. The main impetus comes from issues that have taken center stage in recent proxy seasons, such as the disclosure of corporate political contributions and lobbying activities, investigating the impact of climate change on the business, and the efforts to fill existing gender pay gaps.

Conducted in collaboration with FactSet and ESG data mining firm IRGS Analytics, Proxy Voting Analytics (2015-2018) reviews more than 2,500 annual general meetings (AGMs) held at Russell 3000 corporations in the January 1 and June 30 period. The study details aggregate data on shareholder proposals, management proposals, proxy contests, and other shareholder activism campaigns, segmenting such data for 11 business sectors in accordance with GICS, the Global Industry Classification Standard. To highlight differences between small and larger companies, findings in the Russell 3000 sample are also compared with those for companies that, at the time of their AGM, were in the S&P 500 index. The publication is part of The Conference Board Corporate Intelligence portfolio of benchmarking data and analysis on board practices, executive and director compensation, corporate communications and investor relations, corporate sustainability, and corporate citizenship and philanthropy.

Proposals related to social and environmental policies of corporations received, on average, the support of just 25.7 percent of votes cast at general meetings. This finding indicates that shareholders of U.S. public companies continue to believe that the board of directors and senior management are better suited to determine the business viability of certain sustainability activities, and that one-size-fits-all policies may lead to inefficiencies or capital misallocations. However, it also unveils a number of trends suggesting that the demand for additional disclosure in this area will continue to grow in the coming years.

Besides the increase in the volume of these resolutions, two factors may be indicative of their future. First, even though almost all of the proposals fail to receive a majority vote, there is a clear upward trend with respect to average support levels. For resolutions on political contribution disclosure and lobbying, the 28 percent for votes of 2018 represented an uptick from the 24.6 percent in 2017 and the 24 percent in 2015. Resolutions on human rights went from 10.7 percent in 2017 to 17.5 percent in 2018. Health issue-related resolutions received the support of 21.4 percent of votes cast in 2018, up from 18.8 percent in 2017 and only 6.1 percent in 2015. Further, the study reports that abstention rates have dropped from 10.9 percent of votes cast in 2014 to a mere 2.5 percent this year—a figure consistent with the abstention rate that The Conference Board has observed for years for resolutions on executive compensation and corporate governance. Only a handful of social and environmental policy proposals passed in 2018. They include two at energy company Kinder Morgan Inc. (NYSE: KMI), for the publication of a sustainability report and the assessment of the risk that policies requiring the company to address climate change may pose to the business; and one sponsored by Calvert Investment Management at transportation company Genesee & Wyoming (NYSE: GWR), requesting the setting of greenhouse gas emission targets.

The following are the other Key Findings from the study.

Shareholder proposal volume was lower this year, with a sharper decline among larger companies as investors focus on new topics and continue to broaden their targets. In 2018, shareholder proposal volume decreased 8.9 percent in the Russell 3000 and 11.6 percent in the S&P 500. In the Russell 3000, shareholders filed a total of 638 proposals at companies with AGMs during the examined period, compared to 700 during the same period in 2017. In the S&P 500, the number of shareholder proposals decreased from 550 in 2017 to 486 in 2018. While shareholder proposals remain more common among larger companies, the proportion between the two indexes is gradually changing. In particular, shareholders are increasingly turning their attention to social and environmental proposals across a broader spectrum of business organizations, while proponents of corporate governance resolutions are redirecting their efforts toward smaller firms, where the rate of adoption of shareholder-friendly practices remains lower.

Albeit small, these declines resume the reversal of the volume growth that The Conference Board had reported until the 2013 proxy season (and, in particular in 2010-2013), when the number of shareholder proposals seemed to be heading back to the peak registered in 2008 (919 proposals at Russell 3000 companies and 714 at S&P 500 companies). Compared to the same examined period exactly 10 years ago, the number of investor-sponsored resolutions submitted in 2018 is down more than 30 percent in both indexes. New forms of corporate-investor engagement (especially in the area of executive compensation) and the effects of a revised Institutional Shareholder Services (ISS) policy on board responsiveness also help explain these findings. Telecommunications, utilities, and consumer staples companies were the sectors with the highest concentration of shareholder proposals (0.91, 0.60, and 0.57 proposals per company, respectively), while real estate companies were the least exposed (0.14 proposal per company).

PETA, the National Center for Public Policy Research, and a number of other stakeholder firms investing in publicly traded companies to advance the stance of special interest groups have been increasing their presence at annual meetings, focusing their demands on social and environmental policy issues. The analysis of shareholder proposals by sponsor type highlights the gradual rise to prominence of a category of proponents that had traditionally played a marginal role at AGMs: that of nonfinancial firms, which try to foster corporate changes in the interest of stakeholder groups rather than mainstream institutional investors. These organizations—which include the National Center for Public Policy Research, the People for Ethical Treatment of Animals (PETA), and the Humane Society of the United States—were the major sponsors of resolutions in the environmental and social policy area. Collectively, they submitted 59 proposals in 2018 (or 9.25 percent of the total), down from the record registered in 2017 (88 proposals) but nonetheless at a level that was unimaginable only a few years ago (for example, there were only 28 proposals from these investors in 2013).

The number of resolutions filed by hedge funds continues to decline. However, rather than abating, their activism has morphed into new tactics to put pressure on target companies. Hedge fund activity by means of shareholders proposals continued to decline in 2018, as these investors have been refining tactics to stir public debate on their portfolio companies’ business strategy and agitate for change without making a single SEC filing. Activist hedge funds have long used the threat of proxy contests to pressure management. The tactic of filing a shareholder resolution to get a phone call returned is also far from new, as proven by the proportion of withdrawn proposals documented over time by The Conference Board. However, the rise of campaign announcements unrelated to a shareholder meeting and a specific vote proves that many of these investors have mastered ways to exercise pressure on management without any recourse to the regulatory filing channel.

This evolving approach becomes quite apparent if current sponsorship volume is compared to the one recorded only a few years ago. Then, hedge funds seemed to be on a trajectory to dominance of the proxy voting season, often using precatory resolutions as a means to publicize their view on critical issues at their target companies and to galvanize fellow shareholders around activism campaigns aimed at obtaining board representation. During the 2018 proxy season, hedge funds submitted only 18 proposals (a mere 2.8 percent of the total), down from 28 in 2017 (4 percent) and 39 in 2014 (5.2 percent). Health technology companies and the financial sectors received most of the resolutions filed by these investors. The most common proposals requested that the board break up the company or divest it of specific noncore assets, engage a financial advisor to evaluate a business combination, or issue dividends to return capital to shareholders.

Activity in the area of executive compensation by investment funds affiliated with labor unions continued to soften as those shareholders either ceased their proxy voting initiatives or showed new interests, especially in social and environmental policy issues. The 2018 season marked another sharp year-on-year decline in the number of shareholder resolutions submitted by multiemployer investment funds affiliated with labor unions, such as the United Brotherhood of Carpenters and Joiners of America or the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO). There were only 45 resolutions filed by this type of proponent in 2018 (7.05 percent of the total), down from the 80 resolutions (11.02 percent) of 2015. By way of comparison, an earlier edition of this study had reported 151 proposals submitted by this type of funds in 2010. This means that, in total, proposal volume by labor-affiliated funds dropped 70.2 percent from 2010 levels, a phenomenon that is partially responsible for the lower aggregate volume of shareholder proposals recorded in 2018.

Most commentators agree that the gradual, steady decline is attributable to the introduction of the say-on-pay vote and the federal regulation imposing more widespread executive compensation disclosure, which had traditionally been main topics of concern for labor unions. Some of these investment funds, including the Sheet Metal Workers’ National Pension Fund, have completely exited the activism scene in the last few years, while others have scaled back their involvement. Labor unions filed only 17 executive compensation proposals in 2018, compared to the 28 of those reported in a previous edition of this report for the 2014 proxy season and the 57 of the 2013 proxy season. The volume of their proposals on corporate governance also dropped in 2018 (from 35 in 2014 to 11 this year), while some of these players have chosen to shift their focus to the social and environmental policy-related areas (17 filed resolutions). While their proposals in the environmental and social sphere gained limited traction among fellow shareholders, funds such as AFL-CIO have been using shareholder proposals to suggest that companies publicize studies on the impact that a new strategy or a changed business environment may have on the workforce and local communities—from the closure of factories to the rise of mega online retailers.

Once signature issues for public pension funds, matters of corporate governance are seldom the subjects of the shareholder proposals sponsored today by this investor type—a sign of the progress made by many public companies in the adoption of best practices. Following a pattern that is similar to the one observed among labor union-affiliated funds for executive compensation proposals, public pension funds have progressively reduced their submissions on corporate governance issues among Russell 3000 companies—from 61 in 2013 to 35 in 2014 and 14 in 2018 (a 77 percent decline since 2013). A confluence of factors has been contributing to this downward trend: The progress made by many companies in the adoption of governance best practices (from majority voting in director elections to board declassification, and from the independence of board leadership to the elimination of supermajority vote requirements); the effects of proxy advisory firms’ voting recommendations on board effectiveness, which penalize boards of directors that do not implement widely supported precatory proposals; interest in new social and environmental issues such as climate change risk and political contributions disclosure; and a growing propensity by corporate directors to seek input from large shareholders.

Although pronounced, the decline in shareholder proposal activity is irregular across the public pension fund industry. Some funds have cut back significantly on their filings; for example, the California State Teachers Retirement System (CalSTRS) sponsored only one resolution this year—to eliminate supermajority vote requirements at Netflix (NASDAQ: NFLX)—compared to five in 2014 and 18 during the same period in 2013. Some, such as the Pension Reserves Investment Management Board, have even exited the list of most frequent sponsors. But others remained active proponents even in 2018 (the New York State Common Retirement Fund and the New York City Employees’ Retirement Systems), even though their attention has shifted more toward matters of corporate social responsibility. This year, NYCRS filed six requests for proxy access rights; four of these resolutions went to a vote and two (at Netflix and at Hospitality Property Trust (NASDAQ: HPT) received majority support and passed.

Issues of social and environmental policy have garnered the attention of most proponent types in recent years; their main proponents are often the endowment funds of religious orders and special stakeholder groups. In 2018, shareholders filed 247 resolutions on social and environmental policy issues (or 38.7 percent of the total), down from the 302 during the same period in 2017 (a record year, where they were the single most frequent subject of investor activity and represented 43.1 percent of the total, beating even the 41.1 percent of corporate governance) but in line with the share registered since 2010. Quite varied (and ranging from political contribution disclosure to compliance with human rights and from sustainability reporting to the adoption of a climate change policy), these matters are pursued by multiple investor types (including, as mentioned earlier, public pension funds, labor union, and individual investors); however, the highest concentration of proponents is among religious groups (30 filed resolutions in the first semester 2018 alone) and other stakeholders like the Humane Society of the United States and the National Center for Public Policy Research (collectively, 44 sponsored resolutions).

Confirming data from prior proxy season, the analysis by volume shows that the most popular shareholder resolutions in this category are the requests for political contributions and lobbying disclosure (50 voted resolutions at Russell 3000 companies in the first semester of 2018) as well as those for reports on the environmental impact of business activities (36 voted resolutions). In 2018, they were followed by proposals requesting information on the company’s stance on certain health-related issues that may affect their employees or other stakeholders (10 voted resolutions in 2018) and those urging the adoption of a corporate policy detailing compliance with human rights standards across the supply chain (also 10 resolutions that went to a vote).

The rate of withdrawals of shareholder proposals doubled from a few years ago as companies voluntarily implement their own reforms. In 2018, the number of voluntary withdrawals of shareholder proposals in the Russell 3000 (11.1 percent of the total submissions in the Russell 3000, up from 8.7 percent in 2017 and a mere 5.9 percent in 2012), when combined with omissions by management, exceeded the number of granted SEC no-action letters to companies seeking exclusions. This finding reflects the success of renewed corporate efforts to engage with key shareholders. More than ever before, in this proxy season activist funds and institutional investors have pursued opportunities to be heard ahead of a shareholder meeting. However, guidelines on board responsiveness from proxy advisory firm ISS are also likely to share the responsibility for the growth of withdrawn proposals. Under the new policy, ISS recommends that institutions voting on director elections exercise close scrutiny in those situations where a company failed to implement a precatory shareholder proposal that had received majority support of votes cast at a prior AGM. Therefore, in some cases, withdrawals may result not from dialogue but from the decision of the company to either voluntarily implement the requested change or to submit its own proposal on the same topic to mitigate the risk of wide opposition to management’s nominees to the board of directors.

Withdrawn proposals were mostly submitted by investors and the investment vehicles of stakeholder groups and religious orders—all investor types that rarely elevate these matters to an outright proxy solicitation and would rather use the precatory proposal as a tool to receive the attention of their portfolio companies on issues of concern. However, in 2018, 23 of the 71 withdrawn proposals were sponsored by investment advisers (of hedge funds, mostly), for which the decision to drop the request was likely the result of private discussions or settlements with management. The most commonly omitted proposals were seen in the social and environmental policy area, on which SEC no-action letters are more frequently granted on the basis of the ordinary business operation exclusion (Rule 14a-8(i)(7) under the Securities and Exchange Act).

As large groups of institutional investors reduced their 14a-8 filings or shifted their attention to new topics, the percentage of voted proposals winning the support of a majority of shareholders reached a new low; not a single resolution related to executive compensation passed in 2018. The percentage of voted shareholder proposals receiving majority support has inexorably declined since 2009, from more than 20 percent to less than 11.2 percent in the Russell 3000 sample and from 17.3 percent to 8 percent in the S&P 500. This downward trend is attributable to a decline in the volume of proposals on topics that are traditionally widely supported by shareholders (for example, majority voting and board declassification) and an increase in the share of new types of shareholder resolutions (including those on environmental and political issues) that spark a debate on emerging corporate policies but that fail to obtain majority support. Even though a handful of proposals on each of these new issues passed in 2018 (notably, on proxy access, on the right to call special meetings, and on environmental reporting), sponsoring investors are far from obtaining the widespread support that the shareholder community has shown on key governance practices such as majority voting and board declassification.

In the examined 2018 general meeting period, on average, more than 70 percent of votes on shareholder proposals submitted by other stakeholders, other institutions, and religious groups were against the proposal. The highest level of votes for was observed for proposals by public pension funds (41.4 percent), individuals (35.7 percent), and hedge funds (35.1 percent). Public pension funds and individuals had the highest percentage of voted proposals receiving majority support (25 and 12 percent, respectively).

It is notable that none of the executive compensation proposals voted during the period received majority support in 2018, while the highest share of proposals that did receive it was found in the corporate governance subject category (15.7 percent, or much lower than 27.5 percent of 2017 and 33.9 percent of 2015). Within the corporate governance subject category, three shareholder proposal types received average support of greater than 50 percent of votes cast: those on board declassification (82 percent support, on average), on the adoption of majority voting in director elections (73.9 percent), and on the elimination of supermajority requirements (60.7 percent).

In the year of the nascent #MeToo movement, large pension funds have become more vocal about the need for safe work environments, while other shareholders have urged prominent companies to address gender pay gaps and link executive compensation to human capital management. The #MeToo movement has barely turned one year old. In a first sign of the significance of the current climate, a couple of large and influential public pension funds (California Public Employees’ Retirement System and BlackRock) followed the early example of the New York State Common Retirement Fund and were receptive of recommendations included in a recent publication by the Council of Institutional Investors (CII), announcing revisions to their voting policies meant to promote corporate practices combating sexual harassment in the workplace.

Walmart (NYSE: WMT), Facebook (NASDAQ: FB), Alphabet (NASDAQ: GOOG), and Texas Instruments (NASDAQ: TXN) were among the recipients of gender pay gap proposals in 2018. There were eight such proposals in the Russell 3000, with five that advanced to a vote at the target companies’ AGMs. Socially responsible investment fund Arjuna Capital filed one for the third consecutive year at Google’s parent company, Alphabet, in the wake of a US Department of Labor investigation as well as leaked employee-gathered data suggesting gender pay gaps across the workforce. None of the proposals of this type, including the Alphabet one, passed; however, at least in some cases, their influence appear to extend beyond the annual shareholder meeting vote. Following the filing of Arjuna’s proposal, for example, Google published wage data showing a zero percent statistically significant pay gap for 89 percent of its employees worldwide; while applauding the company’s disclosure, Arjuna refused to withdraw its demands due to what it characterized as the incompleteness of the analysis and the lack of a definitive conclusion on the remaining 11 percent of the workforce. Moreover, in recent months, several companies in the financial services sector that had been the target of similar requests during the 2017 voting season preempted new investor demands by volunteering information on the inequities of their compensation policies and by pledging to close the gaps.

Twitter (NYSE: TWTR) received a proposal regarding online sexual harassment, the first of its kind, which was filed by the New York State Common Retirement Fund. The proposal requested a report detailing the extent to which users of the social network abuse its content policies and assessing the risks posed by content management controversies—whether pertaining to election interference, fake news, hate speech, or sexual harassment. And at Nike, Inc. (NYSE: NKE), investment adviser Trillium Asset Management sought to prompt a debate on how goals pertaining to equality and diversity can be embedded into the company’s incentive plans for senior executives.

Shareholders’ right to call a special meeting tops the list of corporate governance-related resolutions, while issues that had galvanized investors for over a decade barely made the list. The historical analysis by topic of filed shareholder proposals on corporate governance shows that issues that shareholders had frequently pressured companies on for over a decade barely made the list of submissions for 2018. For example, only five proposals on the adoption of majority voting in director elections went to a vote at Russell 3000 companies in the first six months of 2018, down from 14 in the same period of 2017; according to an earlier edition of this study, there were 27 in 2014. Similarly, there were only five voted proposals on board declassification in 2018, down from nine in 2015, 29 in 2013, and 44 in 2010.

Instead, it was the request to allow shareholders to call special meetings that topped the 2018 list of governance-related proposals by volume. Their proponents were primarily individual investors (including John Chevedden, Kenneth Steiner, and corpgov.net publisher James McRitchie). Investors voted on 58 of these resolutions at Russell 3000 companies in the first six months of the year, twice the number The Conference Board recorded for 2017 (23 resolutions) and more than three times the number for 2015 (17) and 2013 (10).

Proxy access reform resolutions ranked second on the 2018 list by volume, but their number continued a decline that had been observed even last year (shareholders of Russell 3000 companies voted on 38 of these proposals in 2018, down from the 49 and 76 instances of 2017 and 2015, respectively). More consistent over the years has been the volume of resolutions meant to strengthen board leadership, given that many companies continue to argue in favor of a dual leadership model that combines the CEO and board chairman positions; in 2018, investors voted on 46 of these resolutions, up from the 40 that were recorded last year.

The average support level for all corporate governance proposals in 2018 was 37.5 percent. Only three proposal types received average support of greater than 50 percent of votes cast: Proposals on board declassification (82 percent support level, on average), those on the adoption of majority voting in director elections (73.9 percent), and those requesting the elimination of supermajority requirements (60.7 percent). In fact, the average percentage of for votes recorded in 2018 in each of these categories was significantly higher than those reported for 2017 and 2015—a finding confirming that the decline in volume observed over the years for these types of proposals is due to the saturation of investor demand, not their waning support in the investment community.

Even though their average support level was below the majority threshold, resolutions on the shareholders’ ability to act by written consent and to call special meetings received 41.9 percent and 40.9 percent of for votes, respectively, in 2018. Among others that passed, a proposal submitted by William Steiner at Nuance Communications received the support of 92.37 percent of votes cast. The lowest level of support was recorded for proposals to introduce terms limits for directors, to allow cumulative voting (9.3 percent, on average), and to increase the size of the board of directors (7.7 percent). The only voted proposal to adopt term limits for board members, which William Steiner filed at real estate construction firm Lennar Corporation, received only 1.1 percent of votes cast.

Say-on-pay analysis confirms a significant turnover in failed votes, with several companies losing the confidence of their shareholders this year after winning the vote by a wide margin in 2017. In the Russell 3000, 53 of the executive compensation plans put to a say-on-pay vote in the first half of 2018 failed to receive the majority support of shareholders. This compares with 28 companies that failed those votes during the same period in 2017 and, according to an earlier edition of this study, 51, 47, and 51 companies that failed those votes during the same period in 2014, 2013, and 2012, respectively. Twelve companies that reported failed votes in 2018 also had failed votes in 2017. They include: IMAX Corp. (NYSE: IMAX); Universal Insurance Holdings, Inc. (NYSE: UVE); Medifast, Inc. (NYSE: MED); Nabors Industries Ltd. (NYSE: NBR); Hospitality Properties Trust (NASDAQ: HPT); Whitestone REIT (NYSE: WSR); New York Community Bank (NYSE: NYCB); and Tutor Perini Corporation (NYSE: TPC). Tutor Perini Corporation is the only company in the Russell 3000 that has failed all eight years of say-on-pay advisory votes. Nabors Industries Ltd. had four consecutive failed votes as of 2014, received 65.3 percent of for votes at its 2015 AGM, then failed the advisory vote again in 2016 (with a mere 36 percent of votes cast in favor of the compensation plan proposed by management), in 2017 (where the percentage of favorable votes cast increased only slightly, to 42.3), and in 2018 (with 62 percent of votes cast against the say-on-pay proposal).

There is a significant year-over-year turnover in failed votes and, aside from the cases indicated above, all companies that failed their say-on-pay votes in 2018 had successful votes in 2017, in most cases by wide margins. This is an indication that companies cannot lower their guard when it comes to compensation oversight and need to ensure ongoing transparency, not only by communicating any new compensation decision made by the board but also by providing reassurance that the compensation policy continues to be aligned with the long-term business strategy of the organization.

Another 113 companies in the Russell 3000 (5.7 percent) reported passing say-on-pay proposals with support of less than 70 percent of votes cast, the level at which proxy advisory firms may scrutinize their compensation plans and evaluate issuing a future negative recommendation. This finding is in line with the 5.6 percent of companies with votes under 70 percent seen during the same period in 2017. The list includes Motorola Solutions, Inc. (NYSE: MSI); Humana, Inc. (NYSE: HUM); Mylan N.V. (NASDAQ: MYL); Weight Watchers International, Inc. (NYSE: WTW); Etsy, Inc. (NASDAQ: ETSY); Harley-Davidson, Inc. (NYSE: HOG); Unisys Corporation (NYSE: UIS); Netflix, Inc. (NASDAQ: NFLX); and Six Flags Entertainment Corporation (NYSE: SIX). Moreover, 19 of the companies below the 70 percent support threshold in 2018 were below that level in 2017. Their boards will inevitably need to reopen the discussion on pay for performance and either persuade investors that their compensation policies are sound and fit the company’s strategic needs or revisit those policies. In fact, many of the companies on this gray list have already made additional filings to integrate information on their approach to executive pay or to dispute ISS’s characterization of their compensation choices.

Although activism campaign announcements in the Russell 3000 were up in 2018, the number of campaigns related to a shareholder meeting declined, as some hedge funds choose to agitate for change without even filing a shareholder proposal. In the first half of 2018, activist investors announced 254 campaigns against Russell 3000 companies, compared to 240 in the same period in 2017 (a 5.8 percent uptick). Activism campaign announcements include proxy contests, exempt solicitations, and any other public announcement of the investor’s intention to agitate for change at a target organization—whether through a press release, an appearance on a CNBC talk show, a Twitter chat, or the filing of a lawsuit. However, the number of campaigns pertaining to a vote at a Russell 3000 shareholder meeting held in the January 1-June 30 time period declined slightly in 2018, to 147 from the 149 of the prior year; a similar phenomenon was shown in the S&P 500, where the total number of activism campaigns involving a shareholder vote went from the record high 94 in 2017 to 80 in 2018. In particular, there were fewer exempt solicitations this year (including “vote no” campaigns to withhold votes at director elections): 100 compared to 107 in 2017.

The discrepancy between announcements and campaigns related to a shareholder vote indicates that a growing number of activists are agitating for change without even filing a shareholder proposal. In fact, considering the recent entry of a cadre of new hedge funds to the activist investment business, some of the campaign announcements unrelated to a shareholder meeting could be mere attempts to assess the bargaining power that a fund exercise on its portfolio companies. In these cases, the activist does not aim at galvanizing other shareholders around a director election or an action by written consent or a vote on a specific resolution. Instead, the announcement serves the purpose of publicizing the investor’s view of the business strategy or organizational performance. It is used as a first step that may lead to the future filing of a shareholder proposal or the solicitation of proxies; it may also prove sufficient on its own to persuade the board of directors to seek dialogue and reach a compromise.

For example, on February 2018, Barington Capital sent a letter and detailed presentation to the chairman and CEO of restaurant chain Bloomin’ Brands, Inc. (NASDAQ: BLMN), recommending that the company implement a variety of measures to improve shareholder value—including the spin-off of its smaller brands, measures to enhance guest experience, and improvements to the company’s corporate governance and board composition (in particular, the addition of new independent directors with strong backgrounds in the restaurant industry). The letter was publicly disseminated though a press release, but it was not followed by an explicit threat of a proxy fight or an exempt solicitation.

Similarly, in March 2018, Jericho Capital Asset Management sent a letter to the management of VMWare, Inc. (NYSE: VWM) arguing that the company would be better off considering other strategic options instead of a potential reverse merger with computer manufacturer Dell, a transaction then under consideration. Jericho then requested a meeting with the board to discuss strategic alternatives. The letter was never escalated to the threat of a proxy fight or an exempt solicitation; in fact, the transaction was never put to a shareholder vote and, later in the year, VMWare and Dell decided not to pursue it.

Proxy contests were the only type of activist campaign related to a shareholder vote to increase among Russell 3000 companies in 2018. However, the outright success rate of dissidents reached a record low this year, with the majority of such contests resulting in settlements. Among types of activist campaigns related to a shareholder vote, proxy contests were the only one that registered an increase in 2018. Activists engaged in 34 proxy contests against Russell 3000 companies that held a shareholder meeting in the first six months of the year, compared to 28 launched in the corresponding 2017 period, 49 in 2015, 35 in 2013, and 23 in 2010. Companies in the consumer discretionary sector faced seven solicitations and companies in the industrials sector were exposed to six; there were four contests in each of the energy, financials, real estate, and information technology sectors, while only one in the telecommunications sector.

Hedge funds have consistently been the most active dissident type. In 2018, they mounted 19 (or 55.9 percent of the total) of the voting fights against management, followed by other stakeholders (six proxy contests, or 18.2 percent of the total), investment advisers (six contests, or 17.6 percent), and individuals (two contests, or 5.9 percent). The vast majority of such contests (23, or 67.6 percent) were motivated by an attempt to gain a seat on the board of directors. Six fights (or 17.6 percent of the total) sought to obtain control of the board to foster a broader range of strategic, organizational, and governance changes, whereas the others were waged to oppose a merger (at AmTrust Financial Services, Inc. [NASDAQ: AFSI], by Carl Icahn), to seek board control (at Aqua Metals, Inc. [NASDAQ: AQMS], by Kanen Wealth Management), and to vote against a management proposal (at HomeStreet, Inc. [NASDAQ: HMST], by Roaring Blue Lion Capital Management).

In 2018, for the first time since The Conference Board began tracking proxy contest outcomes, the majority of initiated proxy contests resulted in a settlement between the dissident and the company, where the company made certain concessions to obtain the support of the activist investor. By the same token, in 2018 the outright success rate by dissidents was the lowest recorded by The Conference Board since 2010, where dissidents won only one of the 23 proxy contests mounted then against Russell 3000 companies (or 4.3 percent). In the Russell 3000, dissidents scored an outright win in only 2 of the 34 (or a mere 5.9 percent) proxy contests where an outcome was reached in 2018, down from a percentage of 17.9 in the same period of 2017 and of 12.5 in 2015. By way of comparison, according to an earlier edition of this study, dissidents succeeded in 7 of the 41 (17.1 percent) of the proxy contests held during the same period in 2014 and in 5 out of the 35 proxy contests of 2013 (14.3 percent). In 2018, three contests (8.8 percent) were withdrawn and eight (or 23.5 percent) resulted in a victory for management. Most importantly, almost 60 percent of the Russell 3000 proxy contests in 2018 concluded with a settlement—as mentioned, the highest share of proxy fight settlements found by this periodic study (previously, the highest percentage of settlements had been found in 2015, and it was 47.9 percent).

Constructive engagement between corporations and investors has been curbing the most hostile forms of activism, as the volume of proposals to elect a dissident’s nominee remains fairly high. In the Russell 3000, in the first semester of 2018, shareholders filed 25 proposals to elect a dissident’s director nominee. Volume was down from the 28 proposals documented for the same period in 2016 and, according to earlier editions of this report, the 39 proposals documented for the same period in 2013, let alone the 52 proposals submitted in 2009—a record year for hostile activism.

The explanation should be sought in certain developments of the last few years, from the introduction of say-on-pay votes (which many shareholders can now use more effectively than director opposition proposals to voice their discontent) to the passage of new rules enhancing governance disclosure and, in general, a business climate favoring more constructive dialogue with investors. Even though it did not match the data for earlier years, the number of contested elections, where management nominees to the board are challenged, was still fairly high in 2018, with roughly 80 percent of proposals of this type (or 20 of the 25 filed) going to a vote during the first six months of the proxy season. By way of comparison, in 2014, 31 of the 35 filed proposals (88.6 percent) on the election of a dissident’s nominee were voted at Russell 3000 AGMs. Such proposals are far less frequent among S&P 500 companies, where large capitalizations make it more arduous for an activist to garner enough support from fellow investors, and ultimately reduce the likelihood of success. There were only two proposals submitted during the 2018 period (and neither of them went to a vote), compared with six in 2017, zero in 2016, five during the same period in 2013, and three in 2012.

As usual, requests for board representation were primarily submitted by activist hedge funds and investment advisers, which are SEC-registered companies that in turn often manage assets of a portfolio of hedge fund clients. Carl C. Icahn led the list with seven filed and four voted board representation proposals, followed by investment adviser GAMCO Asset Management, with six filed proposals (all voted). All but three of the proposals submitted by the top six most frequent sponsors went to a vote, accounting for 88 percent of the total voted.

The 2018 average support rate for this proposal topic has increased to 43.2 percent of shares outstanding. This result was up considerably from the findings in previous years (by way of comparison: 36.7 percent in 2017, 31.4 percent in 2014, and 36.3 percent in 2013), and much higher than the average support reported in 2012 (18.2 percent) and in 2009, which had been a record year in terms of proxy contests (26.4 percent of shares outstanding voted in favor). Nine of those 20 nominees were elected (at SandRidge Energy [NYSE: SD], Acacia Research Corporation [NASDAQ: ACTG], Natus Medical Incorporated [NASDAQ: BABY], and Taubman Centers [NYSE: TCO]. Interestingly, none of GAMCO Asset Management’s nominees received majority support and were elected. Among resolutions on this topic, the highest support level (83.1 percent of for votes as a percentage of shares outstanding) was received by a proposal filed at SandRidge Energy by Carl C. Icahn. The lowest support level (18.7 percent) was on a proposal filed at The E.W. Scripps Company.

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