Guest Post from Stephen Viederman, Fellow, Governance & Accountability Institute, reposted here with the permission of Viederman and Accountability-Central.com. James McRitchie, Publisher of Corporate Governance reformatted the original to bring the footnotes up, hide urls and generated those wonderful ads.
The Spring madness of annual corporate meetings (referred to as AGMs) is upon us.
Their purpose is to report to shareowners, and to listen to shareowners, usually through the mechanism of the shareowner resolution, as dialog and discussion is often limited by corporate management. SEC regulations limit these resolutions to policy issues that are not “ordinary business.” The results of these votes are eagerly awaited by a number of institutional investors and investment managers who have engaged these companies in dialog — and who are often the filers or co-filers of the resolutions.
Filers do know, however, that the votes are predictable, and in most cases “defeat” is inevitable under present rules. But deconstructing the process suggests that they are doing better than expected.
Proxy Issues in Focus
The resolutions for 2013 AGMs range over many issues. Resolutions on corporate governance relate to separation of chair and CEO, board diversity and sustainability reporting.
There is also an advisory vote on compensation packages for senior management. Among 2013 societal concerns are transparency about political activity, and human and worker rights, including workplace diversity. Environmental issues include climate change, environmental management, and industrial agriculture.[See Proxy Preview 2013.]
At the Meeting
Press coverage of AGMs is limited or non-existent. Some AGMs are very short, taking no more than 30 minutes. The audience at these meetings is usually just the board, senior management, the auditors, and few — if any — shareowners. The meeting ends with the preliminary vote on the board election, approval of the auditor, and any resolutions.
Some AGMs are more lengthy, especially if the chair is gracious enough to let people speak, and if there are a number of resolutions introduced. Some years ago, ExxonMobil had 17 resolutions on their proxy list.
The process is fairly standard. The filer or her designee usually has three minutes, and so does a seconder. At the Exxon meeting they even have a traffic light that goes from green to yellow at 2 minutes 30 seconds, and red at three minutes. The chair’s response is to refer the audience to the page in the proxy book where the board’s response is printed.
Audience Questions / Discussion
When all of the resolutions have been presented, there is time for Q&A. There are often “softball” questions. And often strong questions, as well (depending on who controls the microphones) raising serious issues with company. The answers are often not satisfying to owners, but dialog is not usually possible. This year’s Chevron meeting in May is likely to generate considerable attention from owners and press.
Discussion is ended and the auditors report the preliminary vote which represent more than 99 prevent of the proxies voted.
Generally boards are elected (of course with no opposition) by votes in the high 90th percentile. So too, the auditors.
Most of the environmental, societal and governance issues (ESG) will be “defeated,” receiving less than 50 percent of the vote. This is perhaps not surprising since the board recommends shareowners vote against the resolutions. They have a lot of power.
What Really is Happening
Deconstructing the votes, however, suggests that it may be incorrect to call these less than majority votes “defeats.”
First, boards, senior management, partners, managing directors, staff, and their pension plans, together hold significant stock in the company. A rough guess would be in the order of 15 percent, plus or minus 5 percent, depending on the company.
Second, large investment firms tend to have large holdings in companies, and usually vote their proxies with management. Warren Buffett in 2008 owned about five percent of Goldman Sachs. The same year Morgan Stanley sold a stake of up to 20 percent of the company to Mitsubishi UFJ Financial Group. They can be expected to vote with management.
Firms like the US$13 trillion BlackRock hold large stakes in companies and also votes with management.[See AFL-CIO Key Vote Survey: 2012 Proxy Season Investment Manager Scorecard ] BlackRock says that they engage with companies outside the resolution process. That is all good, presumably, but their vote goes with management, and their engagement is not transparent.
The AFL-CIO Key Vote Survey 2012 shows that while more funds and mutual funds are moving away from lock step voting with management, many are still management supporters. Companies know well enough that a resolution cannot “win.” That point has been raised with me this year as a rationale for withdrawing a resolution. They know full well who their owners are and how they vote.
The overall amount that boards might be able to count from investment managers will vary by industry and issue. An estimate of 15 to 20 percent seems reasonable.
Advisory Firms Weigh In
Finally, there is the influence of the proxy voting advisory firms, such as ISS and Glass Lewis. Their recommendations “For” or “Against” a resolution can be significant. A resolution I filed with ExxonMobil garnered 8 percent of the vote the first year filed when ISS recommended their clients vote “Against” and close to 28 percent when they recommended a vote “For.”
Keeping the System Open
Companies will often say that they consider all resolutions seriously, suggesting that percentage of the number of votes in favor is not that important. Practice suggests that even large votes often get little attention as the filers try to engage. Since all votes are precatory—nonbinding—the proxy process must still go on to keep the system as open as possible.
The Conference Board recently concluded that votes on social and environmental issues, getting only ‘teens and twenties, reflects increasing confidence on the part of owners that management is — and can — handle these issues well. (3) Rather, the votes reflect that some owners are more powerful than others, and have self-interest in the outcomes. [See Matteo Tonella, Proxy Voting Analysis (2008-2012), Harvard Law School Forum on Corporate Governance and Financial Regulation, February 24, 2013.]
One modest step might be for management to excuse themselves from voting on an issue since they have already exercised considerable influence on the outcome. Thus, they absolve themselves from being both judge and juror. Autocracy by the board is not consonant with shareowner democracy. This, however, is not likely to happen.
It would be of interest to many if some enterprising investigative journalist would take on the task of deconstructing the votes of a number of high profile companies that have received a number of resolutions. If a 30 percent vote on a resolution is really more than 50 percent of the independent vote, the balance of power might be clarified. This reporting would bring greater transparency to the voting process.
Other thoughts would be appreciated.
About SV: Stephen Viederman
My vocation is Grandparenting, doing what I can to leave options open for my grandchildren and all children.
I am involved in advocacy, writing, speaking and consulting on a wide range of issues. These include: sustainable investing and fiduciary duty; philanthropy and democracy; higher education and public policy; the limits of corporate responsibility; economic and environmental justice and community governance.
My primary focus now is to develop a holistic understanding of fiduciary responsibility consonant with foundations’ obligations to serve the public benefit.
Current affiliations include:
- Board, Network for Sustainable Financial Markets
- Chair, Finance Committee, Christopher Reynolds Foundation
- Advisory Council, Sustainable Accounting Standards Board (FASBE)
- Contributing editor, Journal of Sustainable Investment and Finance
- Advisory Committee, Inflection Point Capital Management
- Advisory Board, Strategic Philanthropy
- Co-Chair, Get Off Your Assets Committee, International Human Rights Funders Group
- Fellow, Governance and Accountability Institute
- Advisory Board, Ethical Marketplace
- Leadership Advisory Committee, Mission Investors Exchange
Recent published papers include Fiduciary Duty (2008), After the Credit Crisis- The Future of Sustainable Investing (with Nick Robins and Cary Krosinsky) (2009), Philanthropy’s Bermuda Triangle (2011), Barriers [to sustainable Investing] in Evolutions of Sustainable Investing Wiley 2012), Investing as if the future matters (2012).
I am active shareowner, representing the Christopher Reynolds Foundation, leading discussions with ExxonMobil and Chevron on the financial risks of climate change, and Pfizer and Accenture on transparency of political contributions.
I retired in 2000 from the presidency of the Jessie Smith Noyes Foundation where, in the early 1990s, I developed and guided the effort to harmonize our asset management with our grant making, including some of the first ‘impact investments’ in ‘responsible growth companies.’ I also served as a board and finance committee member of the Needmor Fund.
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