Towards Board Declassification at 100 S&P 500 and Fortune 500 Companies: Advancing Annual Elections in the 2014 Proxy Season

Editor’s Note: Lucian Bebchuk is the Director of the Shareholder Rights Project (SRP), Scott Hirst is the SRP’s Associate Director, and June Rhee is the SRP’s Counsel. The SRP, a clinical program operating at Harvard Law School, works on behalf of public pension funds and charitable organizations seeking to improve corporate governance at publicly traded companies, as well as on research and policy projects related to corporate governance. Any views expressed and positions taken by the SRP and its representatives should be attributed solely to the SRP and not to Harvard Law School or Harvard University. The work of the SRP has been discussed in other posts on the Forum available here.

In a news alert released last week, the Shareholder Rights Project (SRP) announced the work that SRP-represented investors and the SRP are undertaking for the 2014 proxy season, and the significant contribution that this work is expected to make in moving 100 S&P 500 and Fortune 500 companies towards annual elections.

  • 31 shareholder proposals for board declassification have been submitted to S&P 500 and Fortune 500 companies for a vote at their 2014 annual meetings (listed here);
  • 7 companies—about one quarter of the 31 companies receiving proposals—have already entered into agreements to bring management declassification proposals to a shareholder vote;
  • These 7 companies are in addition to 8 other S&P 500 and Fortune 500 companies that have committed to bring agreed-upon management proposals to a vote in future annual meetings following 2012 and 2013 precatory proposals by SRP-represented investors;
  • The 15 agreed-upon management proposals to declassify, coupled with board declassifications that have already taken place at 80 S&P 500 and Fortune 500 companies as a result of the work by the SRP and SRP-represented investors (listed here), can be expected to contribute to the wide-scale move toward annual elections; and
  • The agreements already obtained following the submission of 2014 proposals, and the ongoing engagements by the SRP and SRP-represented investors with companies receiving 2014 proposals that have not yet entered into such agreements, reinforce the SRP’s expectation that, as a result of the work by the SRP and SRP-represented investors, close to 100 S&P 500 and Fortune 500 companies will have moved toward board declassification by the end of 2014.

» 31 Proposals Submitted for 2014 Meetings: Shareholder declassification proposals by SRP-represented investors have been submitted for a vote at the 2014 annual meetings of 31 S&P 500 and Fortune 500 companies. The proposals urge repeal of the companies’ staggered boards and a move to annual elections. The names of the companies and the SRP-represented investor submitting to each company are listed here. The SRP-represented investors submitting proposals are the Illinois State Board of Investment (ISBI), the Nathan Cummings Foundation (NCF), the North Carolina State Treasurer (NCDST), the Ohio Public Employees Retirement System (OPERS) and the State Board of Administration of Florida (SBA).

» About One Quarter of Recipients Have Already Agreed to Declassify: The SRP and SRP-represented investors have been engaging with companies receiving shareholder declassification proposals. Although the 2014 proxy season is still in its early stages, seven of these companies—about one quarter of the companies receiving shareholder proposals—have already entered into agreements to bring management declassification proposals to a shareholder vote for approval. It is expected that, as occurred during the 2012 and 2013 proxy seasons, ongoing engagement by the SRP and SRP-represented investors will result in similar negotiated outcomes at a significant number of additional companies among those receiving proposals for their 2014 meetings.

» Eight Additional Agreed-Upon Management Proposals: In addition to the seven companies that have entered into agreements to move towards board declassification as a result of 2014 proposals, eight additional companies are expected to bring agreed-upon management proposals to a vote at future annual meetings pursuant to agreements entered into following proposals submitted to those companies by SRP-represented investors for annual meetings in previous proxy seasons.

» Towards Declassification at 100 S&P 500 and Fortune 500 Companies: Together with the 80 companies that have already declassified during 2012 and 2013 as a result of the work by the SRP and SRP-represented investors (listed here), the fifteen agreed-upon management proposals can be expected to make a significant contribution to the large-scale declassification of boards of directors.

Furthermore, based on the above results and ongoing engagement by the SRP and SRP-represented investors with additional companies receiving 2014 proposals, the SRP expects that, by the end of 2014, the work of the SRP and SRP-represented investors will have contributed to movements towards board declassification by close to 100 S&P 500 and Fortune 500 companies.

» Benefits of Declassification: Annual elections are widely viewed as corporate governance best practice. Board declassification and annual elections could make directors more accountable, and thereby contribute to improving performance and increasing firm value. The substantial shareholder support for board declassification, and the significant empirical evidence consistent with this support, are described in two pieces by the SRP’s director, entitled Giving Shareholders a Voice and Why Wachtell Lipton was Wrong about the SRP, as well as in the SRP’s preliminary 2013 Report.

» SRP Work: The SRP provides SRP-represented investors with a range of services, including assistance in connection with selecting companies for proposal submission, designing proposals, submitting proposals on behalf of represented investors, engaging with companies, negotiating and executing agreements by companies to bring management declassification proposals, and presenting proposals at annual meetings.

 

Add your comment below:

(required)

(required but not published)

RSS feed for comments on this post. TrackBack URI

 
  •  » A "Web Winner" by The Philadelphia Inquirer
  •  » A "Top Blog" by LexisNexis
  •  » A "10 out of 10" by the American Association of Law Librarians Blog
  •  » A source for "insight into the latest developments" by Directorship Magazine