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.
Posts Tagged ‘Shareholder proposals’
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.
Toward Board Declassification in 100 S&P 500 and Fortune 500 Companies: The SRP’s Report for the 2012 and 2013 Proxy Seasons
The Shareholder Rights Project (SRP) just released its final report for the 2012 and 2013 proxy seasons, the SRP’s first two years year of operations. As the report details, major results obtained include the following:
- 100 S&P 500 and Fortune 500 companies (listed here) entered into agreements to move toward declassification;
- 81 S&P 500 and Fortune 500 companies (listed here) declassified their boards; these companies have aggregate market capitalization exceeding one trillion dollars, and represent about two-thirds of the companies with which engagement took place;
- 58 successful declassification proposals (listed here), with average support of 81% of votes cast; and
- Proposals by SRP-represented investors represented over 50% of all successful precatory proposals by public pension funds and over 20% of all successful precatory proposals by all proponents.
Is greater trading liquidity good or bad for corporate governance? In the paper, Liquidity and Governance, which was recently made publicly available on SSRN, my co-authors (Kerry Back and Tao Li) and I address this question both theoretically and empirically. A liquid secondary market in shares facilitates capital formation but may be deleterious for corporate governance. Bhide (1993) argues that greater liquidity reduces the cost to a blockholder of selling her stake in response to managerial problems (‘taking the Wall Street walk’), resulting in too little monitoring by large shareholders. Bhide’s work has spawned an active literature on the effects of liquidity on governance. The present paper makes two contributions to that literature: (i) we solve a theoretical model consisting of an IPO followed by a dynamic Kyle (1985) market in which the large investor’s private information concerns her own plans for taking an active role in governance and show that greater liquidity leads to lower blockholder activism, and (ii) we verify the negative theoretical relation between liquidity and activism using three distinct natural experiments.
Towards Board Declassification at 100 S&P 500 and Fortune 500 Companies: Advancing Annual Elections in the 2014 Proxy Season
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.
Mutual funds’ support for corporate political disclosure reached a new high in 2013, according to a ten-year analysis by the Center for Political Accountability. Forty large US mutual fund families voted in favor of corporate political spending disclosure an unprecedented 39% of the time, on average.
CPA’s review of mutual fund votes looks at how 40 of the largest U.S. fund families voted on 276 shareholder requests for disclosure of corporate political contributions at U.S. companies over proxy seasons from 2004 to 2013 (covering shareholder meetings from 1 July 2003 to 30 June 2013). Together, these fund families manage around $3.3 trillion in U.S. securities, according to Morningstar® fund data, and control a large portion of the shareholder vote in US securities.
On November 21, 2013, Institutional Shareholder Services Inc. (ISS) released updates to its proxy voting policies for the 2014 proxy season, effective for meetings held on or after February 1, 2014.  In addition, ISS has requested that companies notify it by December 9, 2013 of any changes to a company’s self-selected peer companies for purposes of benchmarking CEO compensation for the 2013 fiscal year.
This post provides guidance to US companies on how to address ISS policy changes and also highlights recent developments regarding potential regulation or self-regulation of proxy advisory firms.
The amendments to ISS proxy voting policies for the 2014 proxy season relate to:
Institutional Shareholder Services, the influential proxy advisory firm, has published for public comment two proposed changes to its proxy voting guidelines for U.S. companies. The proposals are limited and do not include any change related to the effect of longer board tenure on director independence. ISS had previously surveyed institutional investors and public companies on the topic of director tenure and received strong, but deeply split, responses from both constituencies. The proposed changes are: