Today, November 7th, is the last day to send comments to Institutional Shareholder Services Inc. (ISS) on their 2012 proxy voting policies. Institutional investors, individual investors, corporate issuers, and governance market participants are invited to provide feedback on ISS’ policy updates.
I submitted my comments in an e-mail with responses to a select number of policies and questions as presented in Two Opportunities to Shape the Future. See also the letter from USPX, which makes the point that the SEC passed Rule 14a-11 to set a federal floor, while Rule 14a-8 amendments were to encourage firm specific proposals. With 14a-11 thrown out by the court, we shouldn’t use 14a-8 to simply try to salvage what we lost in 14a-11. A few large institutional investors are proceeding as if the failed 14a-11 should set the standard for 14a-8 submissions. It should not.
The UK is in many ways ahead of the US; they have had the right for shareowners to place their nominees on the corporate proxy, “proxy access,” for years. Additionally, they have a Stewardship code reminding institutional investors of their need to participate in the governance of companies in their portfolio.
However, on both sides of the Atlantic there has been general lack of involvement in corporate governance by institutional investors to the extent that many have termed today’s situation as “ownerless” corporations. At the heart of the problem are conflicts of interest. As the Financial Times points out, “it is difficult for one part of an organisation to be critical of companies whose business another part of the organisation may be seeking to win or keep.”
In Europe, many management groups are owned by banks. Even independent managers face the problem that their top brass may well be as highly rewarded as the company executives they should be challenging on pay… Institutional investors have let large corporations run wild and failed in their fiduciary duty to the ultimate owners of the companies in which they invest. That may include some of the occupiers down at St Paul’s. Perhaps it is time to mobilise the real owners of companies. Activism – a good idea – if it works, 11/6/2011
It is not only “occupiers” who have been let down. With rare exceptions, institutional investors have been pay enablers, contributing to the overly large paychecks of CEOs and NEOs that divide the 99% from the 1%. Almost everyone with investments through institutional intermediaries has been let down. Don’t let the thresholds of 14a-11, 3% holdings for 3 years, become the default standard for 14a-8 proposals. That would cut out all but the largest institutional investors.
CorpGov.net and the United States Proxy Exchange will soon release a model access proposal. In all likelihood the thresholds will provide two options: either 1% held for two years or 100 shareowners eligible to file a proposal under 14a-8 with shares held for two years. Such thresholds would provide a reasonable—but not necessarily easy—means for most long-term shareowners to participate in nominating directors.
Please encourage ISS to endorse such proposals, especially when filed at companies needing corporate governance reform. Please see Two Opportunities to Shape the Future and/or An Open Letter to Institutional Shareholder Services (ISS) for instructions on how to submit comments to ISS and for two examples of comments submitted.
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