Shareholder activism continued to thrive in the 2014 proxy season, spurring corporate action as well as renewed engagement between issuers and investors. While the total number of shareholder proposals declined in 2014, lively activity continued with calls for independent chairs as well as burgeoning growth for social issues. And while few in number, change-in-control payout proposals were notably successful for the first time this year, while equity retention proposals continued to have a weak showing. In addition, support for proxy access proposals also grew at a rate greater than any other type of proposal.
Posts Tagged ‘Georgeson’
For many years, the proactive engagement of shareholders on corporate governance matters has been limited to just a handful of companies. However, over the past few years companies have shown a greater willingness to engage, particularly after the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) made advisory votes on executive compensation (commonly referred to as “say-on-pay”) a mandatory voting item for most publicly traded U.S. companies. Last year we reported on the explosive growth in the level of engagement between public companies and investors on corporate governance matters, with both sides lauding the benefits of such engagement. Investors’ proxy departments have reported the benefits of gaining an early understanding of the issues a company is facing and the rationale behind decisions the company made beyond what is disclosed in the proxy statement. Meanwhile, issuers have found value in gaining firsthand knowledge of the nuances of investors’ proxy voting guidelines.
Given that both sides have seen the benefits of such an exchange, there has again been a significant rise in the number of engagement programs initiated by companies this year. As one would expect, there were a variety of reasons that companies sought to engage in outreach campaigns. While most companies engaged in order to improve on their past voting results, many others have aimed to establish a dialogue in order to maintain positive results. The scope of programs also tended to vary with many being quite expansive. These included lengthy off-season engagements with institutions, multiple contacts with the same institution during the year, in-person visits with investors and inclusion of members of the board of directors in the discussion. Some companies went so far as to proactively reach out to their top 100, 150 and even 200 institutional investors.
The 2013 proxy season marked the third year of Advisory Vote on Executive Compensation (a.k.a. Management Say on Pay, or MSOP proposals) as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act. This post looks at some of the interesting facts relating to the 39 companies that received majority shareholder support for their MSOP vote in 2013 (for meetings held on or before July 31) after failing the vote in 2012 (turnaround companies ). The factors that contributed to turnaround success included improved total shareholder return, significant shareholder outreach, changes in compensation programs, support of proxy advisory firms, and utilization of compensation consultants and proxy solicitors.
The 2013 proxy season marks the third year of Advisory Vote on Executive Compensation proposals (Management Say on Pay (MSOP)) as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act. In 2011, 36 U.S. corporations failed to receive majority shareholder support for their MSOP proposal and in 2012 that number increased to 59. Based on the YTD results for 2013, it seems that there could be fewer MSOP failures this year compared to 2012. In this report, we present some interesting facts relating to the 20 failed MSOP votes for annual meetings through May 17. 
The Rise of Engagement in the 2012 Proxy Season
For many years Georgeson’s Annual Corporate Governance Review has promoted the concept of engagement between public companies and their institutional investors. While Georgeson has noticed increased engagement, the nature of the engagement has generally been incremental and devoted to specific governance and compensation issues from year to year. After years of this slow, incremental growth, the 2012 proxy season became the Year of Engagement and witnessed a marked increase in company/shareholder interaction — engagement that was not limited to a few days out of the five- or six-week period between the mailing of the corporate proxy statement and the last days of a proxy solicitation campaign prior to the annual meeting. The types of issues discussed leading up to and during the 2012 proxy season ranged from executive compensation and board structure to negotiations with proponents over the potential withdrawal of shareholder-sponsored ballot resolutions to just open-ended discussions to understand each other better. The voting statistics contained between these covers cannot fully measure that activity — although they do make it clear that the level of communication was more frequent and intense than in the past.
The past decade has been a whirlwind for corporate governance in America. Since 2001, we have witnessed a myriad of scandals, epic corporate failures and legislative and regulatory attempts to prevent more of the same. Early on it was the failure of firms such as Enron, WorldCom and Global Crossing. More recently, the failure of financial stalwarts like Lehman Brothers, Bear Stearns and AIG nearly pushed our markets to the brink of collapse. These failures have ushered in a new era of shareholder activism and corporate governance initiatives, including extensive legislative reform efforts and new rules by the Securities and Exchange Commission (SEC), the New York Stock Exchange (NYSE) and the Financial Industry Regulatory Authority (FINRA).
While many of the proxy-related reforms have focused on enhanced disclosure requirements (the SEC has approved expansive new rules around director experience and qualifications, board leadership structure, board risk oversight responsibilities and Compensation Disclosure and Analysis (CD&A) disclosure), new regulations have been put in place that fundamentally shift what issues are considered by shareholder at annual meetings in the United States.
According to our research, more than 300 companies subject to Dodd-Frank’s say-on-pay vote requirements have filed proxy statements thus far this year. Of those, 125 companies have held shareholder meetings at which shareholders have voted on advisory resolutions on the frequency in which say-on-pay resolutions should appear on the proxy ballot (commonly referred to as “say-on-frequency” or “say-WHEN-on-pay”), including 77 companies in the Russell 3,000 index and 55 companies in the S&P 1,500 index. Of the 125 votes submitted to date, more than 50% of companies have recommended triennial say-on-pay votes to their shareholders.
A brief look back to the 2009 proxy season reveals one of the most contentious seasons in recent memory. Investor support for board nominees was at an all-time low, proxy contests were at an all-time high and support for shareholder-sponsored resolutions had dramatically risen. As the 2010 proxy season approached, corporate directors knew that it was incumbent on them to restore the trust that was shattered by the market downturn.
The 2010 proxy season was the dawning of a new era in the way director nominees are elected because, for the first time, uncontested director elections were to be considered “non-routine” under New York Stock Exchange (“NYSE”) rules and thus could not be bolstered by the uninstructed broker discretionary vote. Companies also had to make adjustments in anticipation of the new legislation being drafted by Congress that had squarely focused its attention on reforming our financial system and that would impose new requirements on publicly traded companies to rein in perceived egregious compensation practices. Although companies knew that the reform efforts could not be enacted during the current proxy season, they were aware that the proposed changes could reshape the landscape of corporate governance in the United States. The past season demonstrated that companies are starting to prepare for the brave new world that shareholder activism and congressional reform are in the process of creating.
Now that the SEC has issued its proposed proxy access rules and asked for comments by August 17, a critical issue for public companies is what do to in response to this SEC initiative and when. In this Proxy Access Analysis, we provide suggestions for how general counsel and corporate secretaries may begin to educate their management and boards on the issues presented by the proposed rules, evaluate the alternatives for commenting on the proposed rules and plan a course of action for their companies if proxy access is adopted for the 2010 proxy season.
There is a limited amount of time for dealing with proxy access, given the August 17 deadline for SEC comments and the SEC’s apparent intent to promulgate final proxy access rules by the end of November so that they can be effective for the 2010 proxy season. As a result, general counsel and corporate secretaries should be reviewing their board and governance committee meeting schedules now to be sure that there is ample time to educate their management and boards and to take any actions deemed appropriate by their boards, with sufficient flexibility to accommodate the SEC’s proxy access rule-making calendar as it develops.
On April 10, 2009, Delaware’s governor signed into law legislation that has the potential to impact significantly the election of directors. These changes are effective August 1, 2009, but generally would not affect companies until the 2010 proxy season.
This Commentary describes the legislative changes and their practical impact, as well certain questions raised by them. Their practical impact is identified throughout this Commentary under the headings “How Could This Impact You?”
The Delaware General Corporation Law (the DGCL) was amended exactly as proposed by the Delaware State Bar Association earlier this year, with respect to, among other things, proxy access, reimbursement of shareholder expenses, and separate record dates for notice and voting at shareholder meetings. (See the earlier Georgeson Report, dated March 2, 2009, on this topic, as well at the Latham & Watkins/Georgeson Corporate Governance Commentary, dated June 15, 2009.)
Three amendments to the DGCL concern director elections and shareholder voting and are discussed below. Click here to view all of the recent amendments to the DGCL.
Delaware companies will not be required to take any action as a result of the three amendments, which are referred to as “enabling” legislation. The first two amendments will permit, but not require, companies to include the applicable provisions in their bylaws. The third amendment does not depend on revision of a company’s bylaws to become effective, but rather will become a choice that a company’s board will be entitled to make each year.