2013 Proxy Season Review

Steven Hall Partners published a list of all the failed “say on pay” votes this season to date. 56 companies  failed with an average 60% ‘Against’ vote.

• Two additional company received less than 50% ‘For’ but considered the vote a win because ‘For’ votes outnumbered ‘Against’ votes due to abstentions. I say they’re crazy. They failed.
• Nine companies have failed previous votes
  • Abercrombie & Fitch Co. failed in 2012
  • Big Lots, Inc. failed in 2012
  • Cogent Communications failed in 2011
  • Comstock Resources failed in 2012
  • Freeport McMoran Copper & Gold, Inc. failed in 2011
  • Gentiva Health Services failed in 2012
  • Three companies have failed all three of their say on pay votes (2011, 2012 & 2013)
    • Kilroy Realty Corp.
    • Nabors Industries Ltd.
    • Tutor Perini Corp.

See the entire list of 56 companies and more at Short Takes.

Shareholder Proposal Developments During the 2013 Proxy Season by Amy L. Goodman, Gibson, Dunn & Crutcher LLP, July 22, 2013. Shareholders submitted approximately 820 proposals to date for 2013 shareholder meetings, up from approximately 739 proposals submitted for 2012 shareholder meetings. The most common 2012 shareholder proposal topics were:

• political contributions and lobbying (116 proposals),
• board declassification (73 proposals),
• independent chair (48 proposals),
• majority voting in director elections (41 proposals) and
• shareholder ability to call special meetings (34 proposals).

There was an uptick in the number of no-action letters requested but fewer were granted, more denied than last year.  28% were granted based on procedural arguments, such as timeliness or defects in the proponent’s proof of ownership. In many cases this is the ridiculous “gotcha” for submitting a broker letter proving ownership the day before submitting the proposal. “How do we know the proponent still owned the stock?” They trust you to continue to own it through the meeting date but not that day or two at the beginning. Crazy.  Second most likely issue: 18% because the shareholder proposal conflicted with a company proposal that was to be submitted for a vote at the same meeting. You submit a proposal for shareowners to be able to hold a special meeting if called by 10% of the stock. They submit a proposal to allow it at 25%. The SEC should allow both on the proxy. Those are not substantially the same and should not be treated as such.

Based on the 423 shareholder proposals for which ISS provides voting results, proposals averaged support of 34.4% of votes cast. Three proposal topics that received high shareholder support were:

• Board declassification, averaging 80.4% of votes cast, compared to 81.3% in 2012;
• Elimination of supermajority vote requirements, averaging 70.4% of votes cast, compared to 65.9% in 2012; and
• Adoption of majority voting in director elections, averaging 58.8% of votes cast, compared to 62.5% in 2012.

Goodman reminded her clients:

ISS’s 2013 U.S. Proxy Voting Guidelines heightened the significance of a proposal being supported by a majority of votes cast. Under those guidelines, ISS announced that, beginning in 2014, it will recommend “against” or “withhold” votes for “individual directors, committee members, or the entire board of directors as appropriate if … the board failed to act on a shareholder proposal that received the support of a majority of the shares cast in the previous year” (i.e., 2013).

Sullivan & Cromwell’s July 2 analysis points out the vast majority of proposals are submitted to only to large-cap companies. We need to move proposals down the food chain. One problem I have in doing so is in trying to find information about the state of corporate governance  at mid-caps and especially at small-caps.

This proxy season saw a continued increase in Edgar filings by shareholder proponents under SEC Rule 14a-6(g). These filings, which show up on the company’s Edgar website on www.sec.gov under the form code “PX14A6G,” are required by SEC rules if a holder of more than $5 million in stock engages in a “solicitation” that is otherwise exempt from the proxy rules (for example, because the proponent is not an affiliate and does not itself solicit proxy cards). Although there is no indication that the SEC intended these forms to be used on a voluntary basis by small shareholders to amplify and expand their supporting statements, an increasing number of shareholder proponents have seized upon the fact that there is nothing in the form or the mechanics of the Edgar system that expressly prohibits such usage.

To date in 2013, there have been 75 of these filings, compared to 71 in all of 2012, and 49 in all of 2011. Some of these filings indicate that the holder does, in fact, hold over $5 million in stock, while others are silent on the point, or expressly state that the form is being filed “voluntarily in the interest of public disclosure and consideration of these important issues.” Arguably, many of these filings would not be required even for large shareholders, because they may not fall under the definition of a “solicitation” at all.

The analysis also includes a discussion shareowners hiring Broadridge to distribute their arguments to other shareowners, for a price, and use of websites for distributing additional information and references SEC Staff Legal Bulletin No. 14G. See also:

• 2013 proxy season: webcast reviews first half, Corporate Secretary, June 20, 2013.
• 2013 Proxy Season Shows Increased Company Attention to Governance Activity and Investors, Ernst & Young LLP proxy season review identifies top 10 governance trends.
• DOES SHAREHOLDER BEHAVIOR VARY BY COMPANY SIZE?, ProxyPulse.
• Proxy Proposals Worth Considering for Next Season.