James McRitchie exposes the poor reasoning, mis-citation, and false claims in Bernard Sharfman’s attempt to find an argument against shareholder proposals on proxy access. As reported by ValueWalk, this year those proposals gained an unprecedented level of support; “dramatically increased proxy access is the major story of this proxy season…[T]here have been 82 proxy access proposals so far 2015, as opposed to 17 in the entire 2014 proxy season. So far this year, shareholders have approved 48 proposals, compared to just five for all of 2014, and the average votes cast in favor are up significantly to 55% from a mere 33% in 2014. The review [by law firm Sullivan and Cromwell] notes: ‘Perhaps most significantly, modestly more restrictive management-enacted proxy access provisions apparently did not deter shareholders from proposing, and, in many cases, winning on the now standard shareholder proposal format of 3%/3-year/25% of board.'”
Most people would conclude that this means that proxy access is important to a majority of shareholders and therefore the decision of companies like GE and Microsoft to adopt proxy access provisions is reassuring evidence of a robust free market response to concerns about the independence and quality of corporate boards.
But as McRitchie points out, Sharfman’s Panglossian view is that these must be the best of all possible corporate directors and they must have access to the best of all possible information. There is no data to support this conclusion, of course, and no recognition that shareholders might be legitimately concerned about the insularity endemic to management-controlled information and agenda-setting, based on the results. McRitchie also notes crucial outright errors of fact in Sharfman’s description of the history of proxy access and his shabby effort to use academic research to support the exact opposite of the authors’ conclusion.
Of the many failures in Sharfman’s argument, the most outrageous is his unsupported assertion that shareholder concerns about sustainability and climate change are somehow unconnected to value maximization. Sharfman’s insistence on deference to managers and board members on strategic questions does not extend to deference to large institutional investors who, as fiduciaries for the beneficial holders, understand that a lack of attention to those issues will have an adverse impact on shareholder value. The burden of proof is on relentless apologists for corporate insiders to prove that no reasonable investor could conclude that climate change poses an investment risk. Given that the Bank of England, Wal-Mart, and other enterprises have concluded that it has, it is no wonder that Sharfman does not even try. Thankfully, sharp and knowledgeable experts like McRitchie are willing to call him on it.