More than 61 percent of Charles Schwab Corp. shareholders approved a pension fund-led proxy access proposal that would allow shareholders to nominate company directors.
NPR’s Marketplace reports: Many companies have already embraced a kind of governance called “proxy access,” where shareholders can nominate company officials. But other corporations, including IBM and Charles Schwab, oppose it.
Listen to the segment: Why companies differ over ‘proxy access’
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.
Sidley Austin reports:
In just two years, proxy access has become a majority practice among S&P 500 companies, proving again the effectiveness of private ordering by shareholders to enhance their rights.
The firm’s new report on proxy access provides an update on (i) recent shareholder proposals seeking specified revisions to existing proxy access provisions (so-called “fix-it” proposals), including a new appendix summarizing revisions sought by fix-it proposals, corresponding voting results, company responses and SEC Staff no-action determinations, (ii) the first attempt to utilize proxy access at a U.S. public company — which was promptly withdrawn, (iii) new questions relating to proxy access that ISS will consider for purposes of its newly updated QualityScore corporate governance ratings tool and (iv) other recent developments in the area.
Finally, this report includes an updated appendix which highlights, on a company-by-company basis, the various detailed terms of proxy access provisions adopted by 342 companies in 2015 and 2016, including the terms adopted by 79 additional companies since our September 2016 report.
First Use of Proxy Access Bylaw
On November 10, 2016, GAMCO Investors, Inc. and its affiliated funds filed a Schedule 14N disclosing their nomination of a proxy access candidate for election to the board of directors of National Fuel Gas Company pursuant to the company’s recently adopted proxy access bylaw.
National Fuel has a nine-member classified board, and its access bylaw has a 3/3/20/20 formulation. GAMCO disclosed in its Schedule 14N aggregate beneficial ownership of 7.8% of National Fuel’s common stock, and based on its Schedule 13D filings, GAMCO has beneficially owned more than 3% for more than three years. In 2015, GAMCO submitted a shareholder proposal, which did not pass, requesting that the company engage an investment bank to effectuate a spin-off of the company’s utility segment.
Announcement from the NY City Comptroller:
Today, ExxonMobil announced that it will amend its bylaws to adopt proxy access – a cornerstone of Comptroller Scott M. Stringer and the New York City Pension Funds’ strategy to make corporate boards more diverse, independent, and accountable. Proxy access achieves these goals by giving large, long-term shareholders the ability to nominate some of the board’s directors on the company ballot.
The change announced today at ExxonMobil comes in response to a proposal filed by Comptroller Stringer on behalf of the New York City Pension Funds, which received an unprecedented 62% support. The proposal was part of the “Boardroom Accountability Project,” a national campaign launched by Comptroller Stringer to enact proxy access across the marketplace. When the initiative began in 2014, only six companies had meaningful proxy access. Today, it exists among more than 280 companies.
New York City Comptroller Scott M. Stringer released the following statement on Exxon’s decision: “By enacting proxy access and giving investors a meaningful voice in board elections, Exxon has taken a significant step to empower shareowners. With the historic Paris Agreement taking effect this week, it’s more important than ever that Exxon – and every energy firm – have a diverse, independent, and climate-competent board. As these companies navigate the transition to a low-carbon economy, proxy access gives investors a critical tool to hold directors accountable.”
In an interview, Scott Stringer talks about the “Boardroom Accountability Project.”
I wouldn’t say I’m an activist investor. But I am an active long-term investor with large holdings. When you think about our investments—we have shares in 10,000 companies worldwide, including 3,500 that are U.S. based—if we have concerns about the boards we can’t just walk away. So the only way we can protect long-term value is to be active owners and to make sure we have the right directors in the boardroom. And that’s why we have proxy access.
The progress has been remarkable.
In the fall of 2014 when we announced the Boardroom Accountability Project, only six companies had real proxy access. In just two years, we have seen that number grow to 235.
From Holly Gregory’s Sidley Corporate Governance Report:
Through the collective efforts of large institutional investors, including public and private pension funds, and other shareholder proponents, shareholders are increasingly gaining the power to nominate a portion of the board without undertaking the expense of a proxy solicitation.
By obtaining proxy access (the ability to include shareholder nominees in the company’s own proxy materials), shareholders will have yet another tool to influence board decisions. Approximately 40% of companies in the S&P 500 have now adopted proxy access. We expect that proxy access will become a majority practice among S&P 500 companies within the next year.
VEA Vice Chair Nell Minow is quoted in this Washington Post story about proxy access.
For years, shareholders have sought what’s opaquely known as “proxy access” — the ability to nominate their own director candidates on the company’s ballot. And suddenly, they’re actually getting it, as the number of companies changing their bylaws to allow it grows at a record-setting pace. The proxy adviser Institutional Shareholder Services reports that before 2014, less than one percent of companies in the S&P 500 gave investors the ability to put their own candidates on the company’s ballot. As of Tuesday, 36 percent are offering it — including General Electric, Apple and Citigroup.
Adoption is happening so fast, says ISS special counsel Patrick McGurn, that it’s not unrealistic to say that half of all the largest public companies could have the rule in place within a year. “Since 2014 — in the course of two years — the numbers have gone from nothing to virtually a third,” McGurn said. Compared to the pace of change on other rules about how corporations are governed, “there’s only a couple of issues that have even been in the same ballpark,” McGurn says, and even then, the change came slower….Minow says. “My view is that even if every company in the country tomorrow adopted proxy access you would see it used in a fraction of one percent — and that’s appropriate,” she says. “You will see it only in the most extreme cases. … The boats will not be rocked.”
New York City Comptroller Scott Stringer said Tuesday that 50 of 72 solicited corporations have agreed to adopt or vote on proxy-access proposals, thus enabling the New York City Retirement Systems to withdraw proxy-access resolutions to these companies.