Tag: Shareholder meetings


The Board-Centric Annual Meeting

John Wilcox is Chairman of Sodali and former Head of Corporate Governance at TIAA-CREF. This post is based on a Sodali publication by Mr. Wilcox.

For a growing number of listed companies around the world the annual shareholder meeting has come to resemble a trial by ordeal. Instead of the traditional town-meeting business forum, the AGM has morphed into a jousting field where activists, proxy advisors and various special interest groups play a dominant role. This state of affairs has evolved because for the past three decades companies have been resistant to change and defensive about governance reform, while shareholders and activists have taken the lead in successfully promoting greater board accountability and stronger governance rules. Corporate scandals, the financial crisis, escalating CEO pay, declining public trust in business leaders together with enhanced shareholder rights have transformed the annual meeting into an event where companies often focus on damage control rather than showcasing their business.

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SEC’s “Unbundling Rule” Interpretation

Philip E. Richter is partner and co-head of the Mergers and Acquisitions Practice and Gail Weinstein is of counsel at Fried, Frank, Harris, Shriver & Jacobson LLP. The following post is based on a Fried Frank publication.  Related research from the Program on Corporate Governance includes Bundling and Entrenchment by Lucian Bebchuk and Ehud Kamar (discussed on the Forum here).

The SEC has issued two new compliance and disclosure interpretations on the so-called “Unbundling Rule.” The SEC appears to have been motivated to issue the CDIs as part of the political reaction against, and desire to deter, inversion transactions.

The CDIs relate to proposed M&A transactions in which an acquiror would be issuing its equity securities to the target stockholders and the transaction agreement requires the acquiror to make material changes to its organizational documents (such as corporate governance changes). The SEC staff has established a new requirement for separate, precatory (i.e., non-binding) target stockholder votes on material changes to the acquiror’s organizational documents (“unbundled” from the target vote on the transaction itself)—which is designed to heighten the visibility to target stockholders of proposed acquiror corporate governance changes.

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2014 Proxy Season Mid-Year Review

Mary Ann Cloyd is leader of the Center for Board Governance at PricewaterhouseCoopers LLP. This post is based on an edition of ProxyPulse™, a collaboration between Broadridge Financial Solutions and PwC’s Center for Board Governance; the full report, including additional figures, is available here.

This post looks at results from 2,788 shareholder meetings held between January 1 and May 22, 2014. We provide data and analyses on areas such as share ownership composition, director elections, say-on-pay, proxy material distribution and the mechanics of shareholder voting. We also look at differences in proxy voting by company size.

With about three-quarters of the 2014 proxy season complete, voting results continue to show that public company executives and directors must remain vigilant regarding corporate governance matters. In comparison to last proxy-season at this time, large-cap ($10b+) companies have attained higher levels of shareholder support both for directors and for executive compensation plans. In contrast, support levels for executive compensation plans fell at mid-cap ($2b–$10b), small-cap ($300m–$2b) and micro-cap ($300m or less) companies, and support for directors fell at mid-cap companies.

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UK Shareholder Activism: A Toolbox for 2014

The following post comes to us from Jeffery Roberts, senior partner in the London office of Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn alert by Mr. Roberts.

Following an increase in shareholder and investor activism beyond pure executive remuneration issues in the United Kingdom (UK) in 2013, with some 25 companies targeted for public campaigns, this post provides a summary of certain principles of English law and UK and European regulation applicable to UK listed public companies and their shareholders that are relevant to the expected further increase in activism in 2014. This post covers (i) stake-building; (ii) shareholders’ rights to require companies to hold general meetings; (iii) shareholders’ rights to propose resolutions at annual general meetings; and (iv) recent developments in these and related areas through raising and answering a number of relevant questions.

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Lessons from the 2013 Proxy Season

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton, Karessa L. Cain, and Sabastian V. Niles.

1. Shareholder activism is growing at an increasing rate. No company is too big to become the target of an activist, and even companies with sterling corporate governance practices and positive share price performance, including outperformance of peers, may be targeted.

2. “Activist Hedge Fund” has become an asset class in which institutional investors are making substantial investments. In addition, even where institutional investors are not themselves limited partners in the activist hedge fund, several now maintain open and regular lines of communication with activists, including sharing potential “hit lists” of possible targets.

3. Major investment banks, law firms, proxy solicitors, and public relations advisors are representing activists.

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Say Pays! Shareholder Voice and Firm Performance

The following post comes to us from Vicente Cuñat of the Financial Markets Group at the London School of Economics and Political Science, Mireia Giné of the Financial Management Department at IESE Business School of the University of Navarra, and Maria Guadalupe of the Department of Economics and Political Science at INSEAD.

In our paper, Say Pays! Shareholder Voice and Firm Performance, which was recently made publicly available on SSRN, we estimate the effect of increasing shareholder “voice” in corporations through a new governance rule that provides shareholders with a regular vote on pay: Say on Pay. Say on Pay policy is an important governance change mandated by the Dodd-Frank Act that provides shareholders with a vote on executive pay. It is part of a general trend toward more CEO accountability and increased shareholder rights. Shareholders may use this new channel to voice their discontent regarding the link between pay and performance. This new policy is at the forefront of the debate on executive pay and its efficacy to deliver firm performance.

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Passive Investors, Not Passive Owners

The following post comes to us from Glenn Booraem, Principal and Fund Controller at Vanguard Fund Financial Services, and is based on a Vanguard publication by Mr. Booraem.

About a year ago we restated Vanguard’s mission to read: “To take a stand for all investors, treat them fairly, and give them the best chance for investment success.” While the words were new, the ideals were not; they’ve been the consistent principles by which we’ve managed our enterprise since our founding.

As we stand on the cusp of “proxy season”—when investors in most U.S. companies will vote at shareholder meetings on matters including the election of directors and the approval of compensation plans—it strikes me that nothing better exemplifies our mission in action than our efforts to ensure that the companies in which our funds invest are subject to the highest standards of corporate governance.

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Shareholder Activism in the UK: An Introduction

The following post comes to us from Jeffery Roberts, a senior partner in the London office of Gibson, Dunn and Crutcher, and is based on a Gibson Dunn alert by Mr. Roberts, Gareth Jones, and Selina S. Sagayam.

This post provides a summary of certain principles of English law and UK and European regulation applicable to UK-listed public companies and their shareholders that may affect shareholder activism, namely (i) stake-building, (ii) shareholders’ rights to require companies to hold general meetings, (iii) shareholders’ rights to propose resolutions at annual general meetings and (iv) recent developments in these and related areas.

I Own or Am Intending to Acquire Shares; Do I Need To Make Any Disclosures?

The UK’s disclosure obligations (under the UK Listing Authority’s Disclosure and Transparency Rules (the “DTRs”)) apply once a person (or persons acting in concert) has (or together have) a holding of 3 per cent. or more of a listed company’s total voting rights and capital in issue (either as a shareholder or through a direct or indirect holding of relevant financial instruments) unless the relevant listed public company enters an “offer period” (as to which, see below). Thereafter, any changes to that holding that cause the size of the holding to reach, exceed or fall below every 1 per cent. above the 3 per cent. threshold (i.e. reaching, exceeding or falling below 4, 5, 6 per cent. etc.) must be disclosed by the relevant shareholder(s) to the listed company and the listed company is then obliged to announce those disclosures to the market. In addition, the disclosure obligations extend to the disclosure of voting rights held by a person as an indirect holder of shares, such as where a person is entitled to acquire, dispose of or exercise the voting rights attaching to shares (for example, via synthetic holdings or contract(s) for difference). It is important to note that any indirect holdings must be aggregated and separately identified in the relevant notification(s).

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Unbundling Rules and Say-on-Pay Decisions in Apple Shareholder Case

James C. Morphy is a partner at Sullivan & Cromwell LLP specializing in mergers & acquisitions and corporate governance. The following post is based on a Sullivan & Cromwell publication.

On February 22, 2013, the United States District Court for the Southern District of New York enjoined Apple, Inc. from proceeding with a planned vote at its annual shareholders’ meeting on amendments to certain provisions of its articles of incorporation on the grounds that the proposed amendments, which were presented as a single matter to be voted upon, likely violated SEC rules prohibiting the “bundling” of separate matters into a single vote.

In the same opinion, the court rejected a shareholder petition to enjoin Apple’s “say-on-pay” vote. In that regard, the shareholder made similar arguments as those in complaints received by numerous companies in recent months – namely, that the Compensation Discussion and Analysis section was not compliant with SEC rules because it gave insufficient detail on the compensation committee’s decision-making process and the information the committee had. The court disagreed, holding that Apple’s disclosure was “plainly sufficient under SEC rules.”

The unbundling decision serves as a reminder that companies preparing their proxy statements for upcoming annual meetings should ensure that all material, separate matters are presented for separate votes. The mere fact that multiple matters are included in a single charter amendment, or that the matters are all broadly “shareholder-friendly,” is not, based on the Apple decision, sufficient to avoid a violation of the unbundling rules.

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Rethinking the Annual Meeting

John Wilcox is chairman of Sodali, a co-chair of ShareOwners.org, and former Head of Corporate Governance at TIAA-CREF. This post is based on a Sodali publication by Mr. Wilcox.

During the past decade the Annual General Meeting has become a forum for confrontation with shareholders as much as an assembly for the conduct of company business. In today’s environment, companies planning their AGMs must prepare for an array of potential disruptions that can include organized opposition to agenda items, opportunistic activism and campaigns to unseat or replace directors, often accompanied by negative media coverage and reputational damage.

Opinions vary widely as to whether confrontation at annual meetings is a sign of healthy corporate governance or a distraction from essential business goals. Regardless of its merits, controversy at AGMs has become a fact of life for listed companies around the world. How to avoid being surprised or forced into a defensive posture or losing control of the annual meeting is a serious challenge that corporate boards and managers will face once again in 2013.

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