Posts Tagged 'Proxy Access'

The Boardroom Strikes Back

by Steven Davidoff Solomon for The New York Times

This year’s proxy season is turning out to be more hostile than ever, as companies fight back against hedge fund activists.

Companies typically have their annual meetings in the late spring, like the blooming of tulips, and they attract hordes of shareholder activists looking for profits. The activists will often try to elect directors, making proxy season not a reminder of the warming spring but a clarion call for the barbarians at the gate.

Last year, the activists won a series of stunning victories at Darden Restaurants, Sotheby’s and the real estate investment trust now known as Equity Commonwealth, among others. In each case, the companies refused to bow to the activist agenda, preferring instead to try to prevent the activists from electing directors. Each company lost after spending millions of dollars, wasting both money and their boards’ reputations.

The losses actually came as no surprise. In 2014, activists had a 73 percent success rate in electing directors, according to FactSet’s corporate governance database, SharkRepellent. Given the odds, many, including me, predicted that this year’s proxy season would be all about settling as companies sought to avoid these types of bloody losses. This would be the year that shareholder activists dominated completely as companies ran for cover.

We were wrong. Read more here.

Investors fight for greater say on boards

by Stephen Foley for The Financial Times

A campaign to win shareholders a greater say over who sits on corporate boards has exposed a rift between some of the largest asset managers in the US.

Votes on so-called “proxy access” — the right for long-term shareholders to nominate directors — have passed at two US companies, but gone down to defeat at three others.

Over 100 US companies are facing votes on the proposal in the coming weeks, as proxy access has become the largest corporate governance cause of this year’s season of annual meetings.

Fidelity, one of the largest holders of US company shares through its popular mutual funds, is opposing the push for proxy access, even when a company’s management itself supports the idea.

But BlackRock, the world’s largest asset manager, has said it will support most of the proposals, while T Rowe Price and TIAA-CREF are among its most enthusiastic supporters.

Most of the proposals on the ballot this year have been put forward by large public pension funds, including the New York City retirement system and Calpers, the Californian public employees’ fund.

Vanguard, the $3tn asset manager whose stock market tracker funds hold a piece of most US companies, is voting against the bulk of the proposals, preferring a weaker form of proxy access than is on the ballot at most companies.

The public pension funds are pushing a plan that would allow a shareholder or group of shareholders who have held stock for three years, and who hold 3 per cent of a company between them, to nominate board directors. The Securities and Exchange Commission was originally going to make proxy access compulsory, but a legal challenge prevented it from doing so. Read more here.


Hot Topics 2012 Proxy season: Looking ahead to 2013

Corporate Governance Monthly, Deloitte

Recent governance trends were highlighted in the December 5 Deloitte Dbriefs  webcast titled “2012 Proxy Season Observations: Looking Ahead to the 2013 Season.”  The session was hosted by Donna Epps, a partner at Deloitte Financial Advisory Services LLP.

Participants heard insights from Francis Byrd, principal of Byrd Governance; Darla Stuckey, senior vice president of the Society of Corporate Secretaries and Governance Professionals; and Maureen Errity of Deloitte LLP, director of Deloitte’s Center for Corporate Governance. They addressed a number of developments in corporate governance, including shareholder proposals related to proxy access, board composition and diversity, board classification, leadership structure, and others. The type and number of shareholder proposals have been relatively consistent year over year (369 proposals voted on in 2011 compared to 366 in 2012).

Although many proposals voted on do not pass, there was been a slight increase in the number of proposals that have passed in the governance board/voting structure area (54 in 2011 and 72 in 2012) This year, there has also been a lot of attention this year on lobbying and political contributions, perhaps due to the recent national elections. The panelists agreed that looking ahead to 2013, there are likely to be about the same, if not fewer, proxy proposals submitted, with a potential increase in proxy access proposals…Continue reading

Following 2011 Proxy Trends with

by James R. Copland for Boardmember, May 2011.

With the 2011 proxy season now in full swing, several trends are already emerging that deserve notice among those watching corporate governance. Key issues that have emerged thus far and deserve our attention as the proxy season unfolds include votes on executive compensation, proposals designed to enhance shareholder power outside the annual meeting process, and increasing scrutiny being applied to corporations’ political spending.

Under Section 951 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, each public company holding its annual meeting after January 21, 2011, must submit two votes to shareholders: one asking shareholders whether they would like to review executive pay annually, biennially, or triennially; and another asking shareholders to approve the current year’s executive-compensation package. In general, shareholders to date have approved of executive-pay packages but asked for annual advisory votes.

Among the 25 Fortune 100 companies holding annual meetings between January 21 and April 28, only the shareholders of Hewlett-Packard (HP) voted against the company’s executive-pay package. Vote results at the biggest companies highlight the influence of proxy-advisory firms and organized labor: the proxy-advisory firm Institutional Shareholder Services advised its clients to vote down the HP pay plan; and two drug companies whose pay plans were targeted by the American Federation of State, County, and Municipal Employees—Pfizer and Johnson & Johnson—only garnered 57 and 61 percent support for their executive compensation proposals, as compared to over 90 percent support at most companies. (continue reading… )

On First Read, Expect Proxy Access to be Retooled for 2012

by Gary Larkin for The Conference Board – Governance Center Blog, April 19th, 2011.

Wouldn’t it be the ultimate irony if the shareholder proxy access rules approved by the SEC under the Dodd-Frank Act were thrown out by a federal court because they could cost companies too much money? One of the major thrusts behind proxy access over the past couple of decades was that the traditional proxy fights to replace directors has been cost prohibitive to minority shareholders who had to pay for their own ballots.

Most likely the court won’t strike down the rules entirely, but instead will ask the commission to tweak the rules to take into account its concerns about costs of implementing the rules, a major argument made by the federal court hearing the case earlier this month.

The proxy access rules approved by the SEC (Rule 14a-11 and amendments to Rule 14a-8) might not withstand federal court scrutiny unscathed. At least, that is the early read from news reports following the line of questioning of the three U.S. Court of Appeals for the District of Columbia Circuit judges hearing oral arguments in the U.S. Chamber/Business Roundtable lawsuit vs. the SEC.

At the court hearing, two of the three judges questioned the premise of the SEC’s argument regarding the effect the rules would have on costs. Judges David Sentelle and Douglas Ginsburg poked holes in the SEC’s logic that through proxy access there would be fewer contests for director seats. (continue reading… )

Business Groups File Opening Brief in Proxy Access Lawsuit

by Ted Allen for The Risk Metrics Group, December 2nd, 2010.

The Business Roundtable and the U.S. Chamber of Commerce this week filed an opening brief in support of their lawsuit over the Securities and Exchange Commission’s final proxy access rule. The case is being heard by the U.S. Court of Appeals for the District of Columbia Circuit, which typically decides challenges to federal agency rules.

The business groups, in their 215-page brief, argue that the SEC failed to properly weigh the cost of director elections under the rule, acted in an arbitrary and capricious manner, and violated its responsibility to consider efficiency, competition, and capital formation.

The SEC, which adopted the controversial rule by a 3-2 vote in August, has put the regulation on hold until the litigation is resolved. Oral arguments in the case have not been scheduled, but most likely will not be held before March. The Council of Institutional Investors has said it plans to file an amicus brief in support of the rule, which would require investor groups to hold a 3 percent stake for at least three years to be eligible to nominate candidates to appear on management proxy statements.

Even if the proposed SEC Rule 14a-11 is upheld by the D.C. Circuit, it is unlikely that any issuers would be subject to access until 2012. (continue reading… )

The Insignificance of Proxy Access

by Marcel Kahan for The Harvard Law School Forum, November 10th, 2010.

The SEC recently adopted rules on proxy access. These rules grant shareholders who hold at least 3% of the company stock for three years the right to nominate directors and to have their nominees included in the company’s proxy statement and the ballots distributed by the company. Because proxy access is viewed as dramatically lowering the costs of an election contest, both proponents and opponents of these rules predict that they will have a significant impact. Contrary to this conventional wisdom, we argue that proxy access will lead to few shareholder nominations, that most of these nominees will be defeated, and that the occasional nominee who does get elected will have little impact.

Based on past involvement in shareholder activism, we believe that neither mutual funds nor private pension funds will make significant use of proxy access. Certain large public pension funds have shown a modest interest in activism and may make some nominations. The entities with the greatest interests in activism — hedge funds and union-affiliated funds — will generally not satisfy the ownership and holding period requirements.

When compared to traditional proxy contests and to withhold campaigns, proxy access involves significant disadvantages, while promising only modest advantages. The cost savings of proxy access compared to traditional contests are overstated because most proxy contests expenses are discretionary campaign expenses or relate to other expense items that are unaffected by the proxy access rule. By contrast, the limitations that come with proxy access are significant: the number of nominees a shareholder can propose is limited; the level of shareholder support required to gain a seat, as a practical matter, is increased; the company retains control over the design of the proxy cards; and the company retains exclusive access to preliminary voting information. (continue reading… )


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