Rob Swystun, Pristine Advisers
When 2015 is all said and done, it may be remembered as the year “proxy access” became the buzz phrase in the investing world.
Continuing with the trend of increased shareholder activism, USA Today’s Kaja Whitehouse reports that more and more investment funds are pushing for companies to open board nominations to shareholders, something known as the aforementioned proxy access. If boards adopt these proxy access proposals, they would give shareholders the right to nominate director candidates of their own choosing to sit on a company’s ballot or proxy statement.
Without proxy access, director nominees are nominated entirely by boards, usually sans shareholders input. Of course, shareholders can nominate their own director nominees. Those shareholders just have to be of the deep-pocketed variety and be able to spend approximately a ton of money to do it by paying for their own ballots and other materials.
Proxy access would mean these costly battles could be avoided, opening up director nominations to more investors than just the ones who can afford these expensive endeavors.
But, companies aren’t just giving into these particular demands. Far from it. They are pushing back, making for a predictably prickly situation between investors and company boards, as investors have warned that directors could lose votes in the forthcoming election season.
“This is not going to be a merry dance,” Whitehouse quotes senior portfolio manager with California Public Employees’ Retirement System (Calpers) Anne Simpson as saying. The fund manages $296.3 billion in Cali pension money. “We find this very important for board accountability. And if boards do not respond constructively on this, we’ll take our votes to the boardroom. Companies may have no choice but to consider litigation.”
One proposal for 2015 would allow a shareholder or a group of shareholders who have held at least 3% of a company’s shares for at least three years to nominate up to one quarter of a board’s directors.
Whitehouse lists Whole Foods, eBay, Chipotle, Citigroup and Yum Brands as being among the dozens of companies that have received either this exact proposal or one similar to it.
Some of these companies have issued counter proposals that would require more shareholders to have held shares for longer to be able to nominate fewer directors. For example, Whole Foods has requested the Securities and Exchange Commission to quash a shareholder proposal on its ballot and instead include one of its own, which would allow a shareholder or group of shareholders who have held at least 9% of shares for at least five years to nominate a single director.
Because corporate interests trump the interests of just about anyone else approximately all of the time, the SEC initially did agree to Whole Foods’ request, Whitehouse says, but they relented after shareholders got all up in the SEC’s face about it.
Currently, according to a statement by SEC Chairwoman Mary Jo White, the SEC is reviewing whether companies should be permitted to keep shareholder proposals off ballots and include their own instead. The organization apparently won’t have anything more to say on the matter for this proxy season. ($20 says the SEC sides with the corporations. … Nobody wants to take that bet?)
The Business Roundtable has also chimed in, saying “companies may have no choice but to consider litigation” when seeking to keep shareholder proxy access proposals off their respective ballots. Considering the Business Roundtable represents over one third of the US stock market by value, that statement carries some weight.
And some heavy hitters on the shareholder’s side are also coming out with their own warnings to boards.
“If a company decides to not include a shareholder proposal that was submitted, we plan to take action against directors,” said Aeisha Mastagni, investment officer at California State Teachers’ Retirement System. That organization manages $188.8 billion.
Other shareholders that are backing the proxy access push include investment giant TIAA-CREF, which manages $611 billion in assets. State pension funds in Connecticut and Florida are also throwing their weight behind the proxy access push.
“This is a trillion-dollar collaboration,” New York City Comptroller Scott Stringer said. “I think this is the (governance) issue for 2015 and beyond.”
Stringer has sent out 75 proxy access proposals in recent months to companies owned by New York City’s various public retirement funds, which manage $160 billion.
Does this count as shareholder activism? Or is this just another step toward democratizing these seemingly monolithic corporations and making them more accountable to the people who actually own them? Whichever is the case, shareholders getting their own nominees onto boards should be done under the guise of making the company better.