Upcoming Proxy Access Votes

Loren Steffy, of the Houston Chronicle, and Sean Quinn, of the ISS Governance Institute, had recent posts about proxy access and upcoming votes.

At Hewlett Packard a shareholder access proposal was withdrawn after the company agreed to sponsor a proposal in 2013 and at Pioneer Natural Resources Norges Bank withdrew its proposal after the board adopted majority voting and sponsored a proposal to declassify the board. Significant victories I’d say.

A Norges Bank proposal won almost 33% support at Wells Fargo. That’s high, considering the proposal was a binding resolution with thresholds of 1% held for 1 year, lower than CII has endorsed.

At Ferro Corp., a USPX proposal received 13.5% support. According to Quinn, that

appears somewhat high considering many institutional investors’ concerns with the USPX ownership threshold, which would permit holders of as little as $200,000 to nominate board candidates. It’s possible that some investors considered the company’s poor governance practices and history of ignoring majority shareholder votes and cast a symbolic vote for this non-binding proposal.

I sure hope it is more than symbolic. Ferro’s corporate governance is abysmal. ISS seems to fail to take into account that under the USPX model groups of at least 100 shareowners would only be able to nominate one candidate. At the heart of their objection is the assumption that individual investors aren’t qualified to assess potential candidates for nomination. I would argue that nominations should be as open as possible without crowding the proxy with unqualified candidates. As you know, proxies today are far from crowded. Let’s not exclude individual shareowners and small institutional shareowners from the nomination process.

This is more than an issue of fairness. Deliberative bodies tend to make better decisions when all opinions—not just those of a dominant few—are heard. Based on experience with Rule 14a-8 shareowner proposals, where individual shareowners and small institutional investors have often shown successful leadership, we have every reason to believe that nominations by those same shareowners, if permitted, will benefit corporations. Shareowner proposals come most frequently from individuals shareowners but are supported institutional investors. For example, my proposal to require a shareowner vote on the poison pill at Gilead Sciences (GLD) passed with 79% of the vote.

The USPX proxy access proposal language doesn’t allow a single shareowner to propose a nominee (unless they have held at least 1% of the company for two years). It requires 100 shareowners to agree on a nominee. Getting 100 shareowners to agree on anything, let alone a nominee will be difficult, and seems likely only if the nominee is highly qualified. I will be recommending that such groups avail themselves of GMI’s Diverse Director Database that CalPERS and CalSTRS helped fund to help find qualified candidates.

There is little danger “a shareholder group’s nominee may not bring the type of expertise and qualifications needed to add value to the board,” as ISS contends. There is even less danger that should that occur, a majority of shareowners would approve an unqualified candidate over the board’s nominee.

Four of the top proponents of Rule 14a-8 proposals in 2011 were individuals or families. They submitted 358 proposals, while union affiliated submitted 130 and public pension funds submitted 96. While we appreciate the efforts of unions and public pension funds to improve governance at many corporations, we cannot depend on them to act on behalf of shareowners at every public company. There are about 15000 publicly traded companies in the US, of which about 1/3 are traded on exchanges and the other 2/3 traded in various over-the-counter markets. Retail shareowners must be more involved in monitoring if we are to improve corporate governance at most companies.

Daniel Rudewicz’s binding proposal received 21% at KSW’s meeting, which seems like a good showing since insiders own about 20% and KSW adopted a 5% proxy access threshold held for one year to counter his proposal  of 2% held for one year. Rodewicz is another USPX member.

Proxy access proposals are coming up at Charles Schwab and Princeton National Bancorp (see my post on PNBC) on May 17 and at Western Union and CME Group on May 23. ISS is supporting the proxy access proposals at Charles Schwab and Western Umion. I don’t know where they are on the CME Group. I think they are likely to support proposals at and Chesapeake Energy as well. Here’s a bit of Loren Steffy’s article:

First, there’s Nabors Industries, which tried to pay former CEO Eugene Isenberg $100 million last year for giving up the chairman’s title. Isenberg agreed to waive the retirement payment after a wave of investor outcry, but it did little to soothe shareholders’ ire.

During the past five years, Isenberg raked in more than $180 million as the oil field services company’s shares plunged 69 percent from its highs during the same period.

Then there’s Chesapeake Energy, which downplayed almost $1 billion in personal loans that chief executive Aubrey McClendon borrowed against his stake in Chesapeake’s natural gas wells. The controversy pushed Chesapeake’s shares to a four-year low, yet during those same four years, company directors lavished McClendon with almost $170 million in total compensation.

Now, both companies face binding shareholder votes on some of the first proxy access proposals filed since the SEC cleared the way.

Nabors’ annual meeting is June 5 in Bermuda, where the company is domiciled, and Chesapeake’s is June 8 in Oklahoma City.

To quote Steffy once again,  if proxy access efforts prevail, “it will send a strong message to other milquetoast boards: Indulge poorly performing executives and you may find yourself replaced by the shareholders you’re supposed to represent.”

Compliance Week’s Joe Mont also has a good current article, Proxy Access Efforts Starting Slow (5/15/2012), which provides insights from David Lynn, James McRitchie and  J. W. Verret. Well worth reading.

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