Citigroup (C) and shareowner activist James McRitchie, who publishes the popular website CorpGov.net, reached an agreement this week on a proxy access proposal that would allow shareowners to place their nominees directly on the corporate proxy.
In October of 2014, McRitchie submitted what has now become the standard proxy proposal to Citigroup asking the board to amend its governing documents to allow shareowners with 3% of the company’s stock, held continuously for 3 years, to be able to nominate up to 25% of the board and have those nominees placed on Citigroup’s proxy, which would also include a 500 word statement from each candidate so nominated.
Citigroup filed for no-action under Rule 14a-8(i)(9) but that rule was suspended on January 16th after McRitchie pointed out to the full Commission that staff had misinterpreted the original intent of that rule.
Citigroup had countered with a proposed by-law to permit one stockholder owning 5% or more of the Company’s common stock for five years to nominate up to a maximum of one candidate for election to the Board, requiring the Company to list such nominee with the Board’s nominees in the Company’s proxy statement. With Rule 14a-8(i)(9) effectively Whited out, staff denied the requested no-action relief.
This week, McRitchie and Citigroup representatives reached a compromise agreement. McRitchie submitted revised language to limit the number of participants filing for proxy access to twenty and the percentage of nominees to twenty (download pdf C-RevisedProxyAccess2-20-2015). Read management’s endorsement (download pdf C-mgtEndorsement). While Citigroup is urging shareowners to vote in favor of McRitchie’s proposal, they are understandably not endorsing his supportive statement which points out that share price has lagged the S&P 500 during the most recent 1, 2 and 5 year periods and the GMI Ratings has rated Citigroup an ‘F’ based on ESG indicators.
According to McRitchie,
This is a clear victory to Citigroup shareholders. As Les Greenberg and I stated in our rulemaking petition to the SEC in the summer of 2001, ‘Entrenched Managers and Directors will only improve corporate governance when they can be held personally accountable, e.g. voted out of office and replaced by candidates nominated by Shareholders.’
Shareowners have gelled around the 3%/3yr./25% of proxy access board standard with no threshold on the number of participants. A few companies are getting a free pass on minor modifications to those standards this year. Proponents are willing to these changes this year in order to build momentum. Other companies facing proxy access proposals this year should take note. Within a few years the 3%/3yr./25% standard will be as ubiquitous as majority vote standards to elect directors.
Maybe Citigroup is turning a corner – They not only endorsed proxy access, stock price outperformed the S&P 500 during the latest one-month period. Additionally, Citigroup recently announced a $100 billion commitment to finance sustainable growth.
Michael Corbat, Chief Executive Officer of Citi said,
Citi has demonstrated its deep commitment to not only taking environmental consequences into account, but also finding innovative ways to finance projects that lead to sustainable growth. For more than 200 years, Citi’s mission has been to enable progress by facilitating economic growth and financing transformative projects. The core mission hasn’t changed, but the way we approach it has. Incorporating the principles of sustainability into everything we do improves our own operations, enhances our clients’ work, and contributes to a better world.
Citi has established new environmental footprint goals for 2020, including 35 percent reduction in greenhouse gas (GHG) emissions, 30 percent reductions in energy and water use and 60 percent reduction in waste, all against a 2005 baseline. The initiative also includes a longer-term 2050 GHG emissions reduction goal of 80 percent, created using a climate science-based methodology. Targeting 33 percent of its real estate portfolio to be LEED certified, Citi will also seek LEED Platinum certification for its 388/390 Greenwich Street facility in New York City, which will become the company’s global headquarters once it is fully renovated.
“Climate change is expected to impact virtually every sector of the economy,” said Mindy Lubber, President of the sustainability nonprofit group, Ceres, which gave input and convened stakeholders to provide feedback as the commitment was developed. “The financial services industry has a big role to play in scaling up global clean energy investments, and we applaud Citi’s leadership as the company continues to innovate and expand its efforts.”
Another very interesting issue on the proxy at Citigroup will be Bart Naylor’s proposal to amend their clawback policy to provide that a substantial portion of annual compensation of executive officers be deferred and forfeited in part or in whole to help satisfy any monetary penalty associated with any violation of law. I will vote in favor of that initiative
On July 14, 2014, the Department of Justice announced a $7 billion settlement with Citigroup Inc. to resolve claims related to Citigroup’s conduct in the issuance of residential mortgage-backed securities prior to Jan. 1, 2009. The resolution included a $4 billion civil penalty-the largest penalty to date under the Financial Institutions Reform, Recovery and Enforcement Act. Citigroup acknowledged It made serious misrepresentations to the public.
Naylor notes the penalty was borne by Citigroup shareholders who were not responsible for this unlawful conduct. Citigroup employees committed these unlawful acts. They did not contribute to this penalty payment, but instead undoubtedly received bonuses. That just isn’t right. Passage and implementation of Naylor’s proposal would certainly make executive officers at Citigroup more mindful of the law and would reduce the risk to shareowners. See SEC denial of no-action letter.