Rob Swystun, Pristine Advisers
With shareholder engagement on the rise, particularly advisory votes on executive pay at annual shareholders meetings, The Conference Board has reported a significant jump in the withdrawal of investor proposals during the first half of 2014.
Corporate Secretary’s David Bogoslaw says withdrawals of investor proposals have doubled in number over a few years ago and it’s because companies have opted to steal the thunder of investor requests by implementing their own reforms voluntarily, allowing them to avoid a big showdown with shareholders, according to The Conference Board’s recent report Proxy voting analytics (2010-2014).
The report also concluded that guidelines on shareholder engagement released by proxy advisory firm ISS helped to prompt boards to take preemptive action on issues of interest to activist investors.
With this shift in board engagement and activity, investors are now turning their attention to other areas aside from executive pay, such as the restriction of golden parachutes, with five of these proposals receiving majority support at annual general meetings held during the first half of 2014.
Investors seemingly want to know more about political spending and lobbying activities, as the most frequently submitted proposal concerned disclosure of these activities. This year, five out of 86 of these proposals received more than 40% support, which may not seem like much, but only a single one received that kind of support last year.
Splitting the CEO and chairperson roles also garnered a high number of proposals, although the average support level of 31% for such proposals hasn’t grown significantly, says report co-author Melissa Aguilar, a researcher in The Conference Board’s corporate leadership department. She co-authored the report with Matteo Tonello, managing director of corporate leadership at The Conference Board.
‘We’re still seeing a lot of those proposals because investors still want to have that conversation with companies and get to have that engagement about why those roles are combined,’ Aguilar says. ‘There have been companies that have made a concerted effort to expand the responsibilities of their lead director. That could be one reason we’re not seeing a huge groundswell of support for splitting the roles in all cases.’
And, she adds, the lack of uptick in support could be attributable to the fact that by merely having the proposals, this creates dialogue about it and enables companies to explain their rationale for combining the roles.
Between Jan. 1 and June 30 of this year, 62 of 72 proposals calling for a split of the CEO/board chair positions of Russell 3000 companies went to a vote. Over on the S&P 500 Index, 48 of 56 such proposals went to a vote.
“The overwhelming majority in both indexes were filed by individual sponsors,” Aguilar noted, “rather than institutional investors.”
So, just what are those institutional investors concentrating on? The report suggests that they may have switched their focus from things like executive compensation to social and environmental issues.
The relatively recent say-on-pay votes may have something to do with that. Proposals from labor-affiliate investment funds have dropped by 43% from their 2010 level, prior to say-on-pay. One area where proposals from labor unions has grown, though, is social and environmental proposals.
“Labor unions may be reassessing their policy priorities following their recent accomplishments in the executive compensation area,” the report’s executive summary said.
From Industrial to Finance
The unions also appear to be shifting their focus on what kind of company they go after, with more than 20% of the 86 proposals submitted by labor unions this year targeting financial companies.
The report authors call this “a very high proportion considering the history of activism by this type of funds and their traditional focus on industrial sectors.”
Going After the Little Guys
Shareholders across a broader range of businesses are concentrating more on social and environmental proposals, according to the report, but proponents of corporate governance resolutions are shifting their attention toward smaller companies that typically have a lower adoption rate for shareholder-friendly practices.
There have only been four proposals for board declassification for companies in the S&P 500 this year, for example, compared to 17 in the first half of last year and more than 40 in the first half of 2012.
“The numbers were smaller this year because many of the [large] companies that have gotten proposals have already made changes,” Aguilar said.
There was a similar drop off among Russell 3000 companies with 16 declassification proposals this year versus 32 in the first half of 2013.
“For all the debate over whether or not declassified boards are the right way to go for all companies, when those proposals go to a vote they get very high levels of support, over 80%,” Aguilar said.
You can click here to register and download the report. Knowing the shifting trends in shareholder activism over the past few years may give you some insight into where things are likely headed in the years to come.