Charles Elson’s 2018 Proxy Season Predictions

Forbes’ Christopher Skroupa interviewed Charles Elson of the University of Delaware’s John L. Weinberg Center for Corporate Governance about what we can expect in next year’s proxy season:

I think you’re going to see a lot more direct involvement between shareholders and directors than before – whether it’s with a non-executive chair of the board, or head of the governance committee, I think there is a real desire on the shareholder side to directly engage with the party who directly represents them, the director, rather than simply engaging with management.

I believe you’re going to see more calls for discussions, obviously subject to the requirements of Regulation Fair Disclosure, but, ultimately, much more engagement. My suspicion is that, from the board’s perspective, it will be more of a listening and awareness exercise, as opposed to discussions, because the law is very strict on what kind of conversations can take place.

For a director, listening carefully to the concerns of investors saves the directors a lot of trouble down the road. Even more importantly, it helps them better analyze management’s actions at the companies which they oversee…[Boards are] going to have to listen to the concerns that the activists express. It’s not the messenger, it’s the message that’s important here. Companies need to become responsive to the message that the activist is carrying. If everything was going beautifully, the activist would never show up.

Center for Political Accountability: Rise in Mutual Fund Support for Shareholder Resolutions on Political Contributions

The Center for Political Accountability reports that mutual funds are increasing their support for shareholder resolutions calling for companies to disclose information about their political contributions.

Support by mutual funds for the Center for Political Accountability’s corporate political disclosure resolution jumped significantly in 2017, to 48 percent from 43 percent in 2016, according to an analysis by Fund Votes.

The analysis also found that abstentions decreased from five percent to three percent, indicating a shift toward more active support for political
transparency in the first year of Donald Trump’s presidency….Among 20 of the 23 largest asset managers globally, average support for the CPA model
resolution was 37.3 percent, based on 22 resolutions filed. This represents an increase of more than six percentage points from 2016 when average support was 31.1 percent, based on 27 resolutions filed. In addition, more fund groups participated in voting on the resolutions with abstentions decreasing by an average of eight percentage points from 11.5 to 3.4 percent.

As has been the case in previous years, the biggest fund groups remained the biggest laggards. Vanguard, Fidelity, BlackRock and American Funds continued a nearly unbroken record of voting against or abstaining on corporate election spending disclosure resolutions. Average shareholder support also dropped slightly from 33 percent in 2016 to 30 percent in 2017.

Corp Fin refuses to allow exclusion of new form of proxy access fix-it proposal – Cooley PubCo

We think the word they are searching for is “motivated.”

You may have thought that, after the series of staff no-action positions allowing exclusion of so-called “fix-it” proposals during the last proxy season, we had seen the last of them. If so, you would be forgetting how persistent (or relentless, depending on your point of view) these proponents are.  And this time, the staff has rejected the no-action request of H&R Block—once again the unfortunate trailblazer— which had sought exclusion of another proxy access fix-it proposal—this time to eliminate the cap on shareholder aggregation to achieve the 3% eligibility threshold—from the prolific John Chevedden et al. Given the result, you can expect to see more of this form of fix-it proposal next proxy season. 

Source: Corp Fin refuses to allow exclusion of new form of proxy access fix-it proposal – Cooley PubCo

Shareholder Proposal Reform Rebutted – Corporate Governance

We strongly recommend James McRitchie’s point-by-point rebuttal to the Chamber of Commerce’s “fake news” plea to “protect” corporate executives from non-binding shareholder proposals. It is well worth reading in its entirety, but we particularly note his response to the Chamber’s claim that “social” proposals are not relevant and have no merit. That is a matter for shareholders to decide. The strong support from the broad range of the shareholder community for these proposals proves that they are relevant and the response by companies to that support shows that they can be effective. Indeed, that is the reason the Chamber wants to get rid of them. McRitchie says:

Rule 14-8 is not broken, many of the Chamber’s attestations are alternative facts and its recommendations are more likely to hurt our economy than help it.

Source: Shareholder Proposal Reform Rebutted – Corporate Governance

The Value of the Shareholder Proposal Process

One of the most appalling provisions of the proposed “CHOICE” legislation is the one that would severely limit shareholder proposals, which, in case anyone needs a reminder, are non-binding, so that even a 100 percent vote would not force a board or executives to make a change. Also, in case anyone needs a reminder, the subject matter of shareholder proposals is already strictly limited (excluding “ordinary business,” for example), and this provision has suddenly become important just as shareholder proposals have been getting majority support. Once again, the same people who love to rhapsodize about the purity of the free market do not want to let “the invisible hand” provide any market-based feedback.


Julie Gorte and Tim Smith write in defense of shareholder proposals at Harvard Law School’s Corporate Governance and Financial Regulation blog:

The voice of shareholders is valuable both to companies and to investors alike. Shareholders file proposals with companies to help them perform better, not to annoy them. The fact that many resolutions now get votes in the 30-50 percent range, and many pass with majority votes, demonstrate that shareholders often see these resolutions as being in their financial interests.

This point is easy to illustrate with examples. In 2016, there were about 1,000 shareholder proposals filed in the United States, of which about 400 were on social and environmental issues. The remainder concerned corporate governance. None of these categories are trivial or peripheral to protecting a company’s reputation or its value, as reams of research demonstrate.

Source: The Value of the Shareholder Proposal Process

Value of Shareholder Proposals, Even When They’re Wrong

[S]hareholder activists can help improve long-term value, even when following the activists’ proposals would not.  That is just as true today and these proposals may well prime the pump for future board or shareholder actions.  That is, GM has conceded that its stock is undervalued and that change is needed.  GM argues those changes are underway, and for now, most voting shareholder agree.  But we’ll see how this looks if the stock price has not noticeably improved next year.  An alternative path forward on some key issues has been shared, and that puts pressure on this board to deliver.  They can do it their own way, but they are on notice that there are alternatives.  And shareholders now know that, too.

This knowledge underscores the value of shareholder proposals as a process.  They can and should create accountability, and that is a good thing. I agree with GM that the board should keep control of how it structures the GM leadership team.  But I agree with the shareholders that if this board doesn’t perform, it may well be time for a change.

 

Source: Business Law Prof Blog

“Free Market” Shareholder Proposal on Lobbying Disclosure at Caterpillar

A shareholder proposal on disclosing of lobbying priorities from the right-wing National Center for Public Policy Research’s Free Enterprise Project:

At this week’s Caterpillar annual shareholder meeting, the National Center for Public Policy Research’s Free Enterprise Project (FEP) is asking company investors to support FEP’s shareholder resolution asking the heavy equipment manufacturer to report on how and why it chooses its lobbying priorities.

“After eight years of President Obama’s regulatory overreach, high corporate taxation and executive actions that hampered growth and led to America’s worst economic recovery since the 1930s, we finally have a president willing to work with business leaders on a pro-growth agenda. President Trump is showing an eagerness to increase American manufacturing and bring jobs back to America,” said National Center General Counsel and FEP Director Justin Danhof, Esq. “Our shareholder proposal urges Caterpillar to capitalize on the current political climate to advance the company’s goals and improving shareholder value.”

The labor group CtW also submitted a shareholder proposal at the Caterpillar annual meeting. Theirs was to implement a stronger clawback policy. It received 121,854,679 votes in favor and 292,939,985 votes against. There were votes more than 25 million cast against three of the directors as well.

For the First Time, A Climate Proposal Gets Majority Support: Occidental Petroleum

Emily Chasen writes in Bloomberg:

Occidental Petroleum Corp.’s shareholders approved a proposal Friday to require the oil and gas exploration company to report on the business impacts of climate change, marking the first time such a proposal has passed over the board’s objections.

The resolution, initiated by a group of investors including the California Public Employees’ Retirement System, received more than 50 percent of the votes at Occidental’s shareholder meeting in Houston on Friday, according to spokesmen for the company and Calpers. Occidental didn’t provide the tally, but said the exact figures will be submitted to the Securities and Exchange Commission in coming days.

“The board acknowledges the shareholders support for this proposal,” Eugene L. Batchelder, chairman of the board for Occidental, said in an e-mailed statement Friday after the vote. “We look forward to continuing our shareholder engagement on the topic and providing additional disclosure about the company’s assessment and management of climate-related risks and opportunities.”

The resolution came close to majority support last year. A crucial factor in exceeding the 50 percent mark was Blackrock, a major shareholder, who switched from voting against the proposal last year to voting for it. One reason might be the concerns that the new administration’s opposition to environmental regulation may mean that investors can no longer rely on the government to take care of the problem.

“The passing of this resolution is a sign of progress. It is a first in the United States. The vote at Occidental demonstrates an understanding among shareowners that climate change reporting is an essential element to corporate governance. I believe that we will see many more companies move in this direction. This vote shows that investors are serious about understanding climate risk.” – Anne Simpson, CalPERS Investment Director, Sustainability

Big corporations are trying to silence their own shareholders – The Washington Post

David H. Webber, professor at the Boston University School of Law, writes about efforts funded by corporations to reduce the number of shareholder proposals. Note that a very small number of these proposals are filed each year, at a very small percentage of companies, and that even a 100 percent vote in favor is almost never binding on management. And yet, somehow advisory votes by shareholders are so terrifying that the snowflakes in the corporate boardroom get the vapors even thinking about them.

Corporate lobbyists at the Business Roundtable — led by JPMorgan Chase chief executive Jamie Dimon — are heralding an effort to sharply limit the ability of investors to have a say in their companies through shareholder proposals. If successful, it will reduce stockholders’ ability to shape the companies they own and hold corporate managers accountable. As with political voting rights, these corporate voter-suppression efforts demonstrate that even the most basic rights need constant vigilance to protect them.Shareholder proposals — governed by the Securities and Exchange Commission — allow shareholders to suggest ideas to be voted on by their peers at the annual meeting. As with voter-suppression tactics generally, the Business Roundtable would not eliminate shareholder proposal rights. Tactically, that would be too crude. Instead, it would interpose a series of technical requirements that would have the same effect as a ban. Most notably, the Roundtable would drastically raise the ownership threshold needed to file a proposal.But shareholder proposals are effectively tools for significant corporate change, akin to ballot initiatives that have played such an important role in American democracy. In recent years, shareholder proposals have called for better assessment and disclosure of climate change risks and for improved diversity in hiring….A recent SEC study shows that New York City’s efforts [to get companies to adopt proxy access provisions] led to a total increase of $10.6 billion in shareholder value at targeted companies…Even when unsuccessful, shareholder proposals can become important mechanisms for registering discontent and helping companies adjust policy…Shareholder proposals mainstreamed diversity as an investment issue, recently pounced on by State Street — a traditional investment house with $2.5 trillion in assets under management — which adopted a new voting policy favoring women board members, symbolically underscored by the company’s commission of the “Fearless Girl” sculpture on Wall Street….None of this is to say that shareholder proposal rules are perfect. Certain revisions might be worth considering. But nothing justifies the stratospheric threshold that Dimon and the Roundtable are backing. Apparently, they’re not interested in protecting shareholders — only in protecting themselves.

Source: Big corporations are trying to silence their own shareholders – The Washington Post