During the 2014 proxy season, governance-related shareholder proposals continued to be common at U.S. public companies, including proposals calling for declassified boards, majority voting in director elections, elimination of supermajority requirements, separation of the roles of the CEO and chair, the right to call special meetings and the right to act by written consent. While the number of these proposals was down from 2012 and 2013 levels, this decline related entirely to fewer proposals being received by large-cap companies, likely due to the diminishing number of large companies that have not already adopted these practices. Smaller companies, at which these practices are less common, have not seen a similar decline and, if anything, are increasingly being targeted with these types of proposals.
Posts Tagged ‘Shareholder proposals’
This post provides an overview of shareholder proposals submitted to public companies during the 2014 proxy season, including statistics, notable decisions from the staff (the “Staff”) of the Securities and Exchange Commission (the “SEC”) on no-action requests and information about litigation regarding shareholder proposals.
The 2014 proxy season, like previous seasons, has provided shareholders of public US companies with an opportunity to vote on a number of corporate governance proposals and director elections. Throughout this proxy season, proxy advisory firms have provided shareholder vote recommendations “for” or “against” those proposals and “for” or to “withhold” votes for directors. Certain proxy advisory firms, such as Institutional Shareholders Services Inc. (“ISS”) and Glass, Lewis & Co., LLC (“Glass Lewis”), have also published updated corporate governance ratings reports on public companies, including evaluations of a company’s corporate governance risk profile.
UNITE HERE proposals to opt out of Maryland Unsolicited Takeover Act have received resounding support from shareholders of Ashford Hospitality Prime.
Over the past two years, activist shareholder UNITE HERE, the hospitality workers’ union, has been winning corporate governance reforms at lodging REITs, which are nearly all incorporated in Maryland.
Several proposals ask boards to opt out of Maryland statutes which provide a range of anti-takeover tools. The Maryland Unsolicited Takeover Act (MUTA), for example, allows boards to classify at any time without shareholder approval.
UNITE HERE has argued that without opting out of MUTA—and requiring shareholder approval to opt in—a Maryland REIT has not truly declassified its board. The proposals to opt out of Maryland’s anti-takeover statutes have gained traction, with six proposals withdrawn after full or substantial implementation.
Last May, Broadridge Financial Solutions, Inc., the provider of proxy services for over 90% of public companies and mutual funds in North America (“Broadridge”), decided to end its established practice of providing interim vote tallies (sometimes referred to as “preliminary voting results”) to proponents of shareholder proposals. Following this change in practice, the Council of Institutional Investors (“CII”) sent a letter to the SEC asking the Commission to reverse Broadridge’s change in practice. Later in July, Broadridge reviewed its decision, promising to “continue to monitor developments on th[e] issue” and noting that it is contractually obligated to follow client directions regarding release of interim vote tallies.
Corporate governance has always been an important topic. It is even more so today, as many Americans recognize the need to develop a more robust corporate governance regime in the aftermath of the deepest financial crisis since the Great Depression.
Although the recent financial crisis—aptly named the “Great Recession”—has many fathers, there is ample evidence that poor corporate governance, including weak risk management standards at many financial institutions, contributed to the devastation wrought by the crisis. For example, it has been reported that senior executives at both AIG and Merrill Lynch tried to warn their respective management teams of excessive exposure to subprime mortgages, but were rebuffed or ignored. These and other failures of oversight continue to remind us that good corporate governance is essential to the stability of our capital markets and our economy, as well as the protection of investors.
This proxy season, rather than following the traditional route of seeking no-action relief from the Securities and Exchange Commission (“SEC”) (or, in one instance, after receiving a no-action denial), at least four companies have filed lawsuits against activist investor John Chevedden, in each case requesting declaratory judgment that the company may properly exclude Chevedden’s proposed shareholder resolution from the proxy materials for its 2014 annual meeting. While companies have enjoyed judicial victories against Chevedden in the recent past (including during the current proxy season), this month, for the first time, three federal courts dismissed actions against Chevedden, citing lack of subject matter jurisdiction.
On March 10, 2014, in a no-action letter to SeaWorld Entertainment, Inc. (the “Company”), the Securities and Exchange Commission (“SEC”) signaled its position that shareholders seeking to submit proposals for inclusion in the proxy materials of newly-public companies are not exempt from the requirement in Rule 14a-8(b)(1) that proponents must hold the requisite amount of stock in the company for at least one year by the date on which they have submitted their proposal.
In a news alert released last week, the Shareholder Rights Project (SRP), working with SRP-represented investors, announced the high level of company responsiveness to engagements during the 2014 proxy season. In particular, as discussed in more detail below, major results obtained so far include the following:
- Following active engagement, about three-quarters of the S&P 500 and Fortune 500 companies that received declassification proposals for 2014 annual meetings from SRP-represented investors have already entered into agreements to move towards board declassification.
- This outcome reinforces the SRP’s expectation (announced in a blog post available here) that, by the end of 2014, the work of the SRP and SRP-represented investors will have resulted in about 100 board declassifications by S&P 500 and Fortune 500 companies.
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.