Lessons on Proxy Voting From 2014 Mini-Season

PwCBroadridgeProxyPulse, a partnership of Broadridge Financial Solutions and PwC’s Center for Board Governance, released its first report of 2015, based on results from the 2014 fall mini-season that analyzed beneficial shareholder data from 1,077 U.S. public company shareholder meetings. There are lessons here for both issuing companies and shareholders.

The mini-season involves more small- and micro-cap companies than the regular season. Institutional shareholders owned 59% of the shares while retail shareholders owned 41% of shares at companies where voting took place.

Highlights include: 

  • 125 directors failed to attain majority support for election, compared to 99 directors in the 2013 mini-season, an increase of 26%.
  • Institutional shareholders voted 83% of their shares and retail shareholders voted 28% of their shares during the period.
  • Almost half of all companies whose compensation programs failed to garner at least 70% shareholder support in the 2013 mini-season also failed to receive at least 70% support in the 2014 mini-season.

Institutions voted 88% of their shares 60 at mid-cap companies but only 55% of their shares at micro-caps. Retail shareholders voted 34% of their shares at mid-cap companies but only 24% at micro-caps.

Dear readers, how do institutions get away with not voting? Aren’t proxy votes assets? Don’t they have a fiduciary duty to vote their proxies? Is it simply that no one is holding them accountable?

I can understand retail shareholders not voting. For most, it is too much trouble to read through the proxy and even if they do, they still are unlikely to know how directors or CEO performance compares to peers or even to performance metrics such as value added. But I don’t understand how institutional investors get away with not voting. It would be interesting to see which funds are falling down on this duty.

Declines in support levels were pronounced at large-cap companies. During the 2013 mini-season, only one large cap company failed to achieve at least 70% support for say-on-pay. During the 2014 mini-season, six large-cap companies (17%) failed to meet this threshold. I wonder if large-cap companies move their annual meeting date to the mini-season in hopes that fewer are paying attention?

Whole Foods moved their meeting to September. I assume they did so to get a better sense of what other companies are doing on proxy access. Are they also hoping fewer will notice what actions are taken? If so, the ProxyPulse report makes this it look like board positions might get fewer votes.

The ProxyPulse report finds that “low retail voting rates continue to present companies with engagement opportunities,” given that “unvoted retail shares total about 22.5 billion.”

ProxyPulse advises that companies could take specific steps to encourage retail shareholders to vote: 

  • Send a “reminder to vote” communication to retail shareholders, possibly targeting shareholders that voted in a previous year
  • Educate employee shareholders on corporate governance and proxy items and encourage them to vote their shares
  • Make annual meeting materials easy to find on the company’s website
  • Better understand the makeup of the company’s shareholder base, and consider changes to how the company distributes proxy voting materials to shareholders
  • Utilize social media to educate shareholders on the issues and encourage active voting

However, this also presents an opportunity for activist and pre-disclosing funds. If CalPERS and CalSTRS, for example, can get their two million members voting with them (assuming some of them own stock), those funds would have even more clout. What about Bill Acumen’s Pershing Square or Carl Icahn’s Icahn Enterprises L.P. (IEP)? Shouldn’t they be announcing their votes in advance and suggesting investors sign up to ProxyDemocracy.org to be notified each time a fund announces their votes at a portfolio company?

ProxyPulse, and many of the people I talk to seem to think that if more retail investors vote, most of those votes will automatically go to management. Even organizations that are supposed to represent retail investors seem to believe the same.

American Association of Individual InvestorsFor example, when John Bajkowski, President, American Association of Individual Investors (AAII), was asked at the recent SEC Proxy Voting Roundtable about what information his members need in order to vote, the gist of his response was that if they don’t like what management is doing they simply sell the stock, although he also said they would be more likely to vote if they felt it had an impact.

Australian Shareholders' AssociationAs a lifetime member, I don’t think AAII is doing much to encourage responsible governance. Their focus is on stock-picking and financial planning. So, if I don’t like something at a great company like Apple, I’m supposed to just sell, rather than use my vote? I’m sure Bajkowski would agree that makes no sense. I would love to see AAII transformed into something more akin to the Australian Shareholders’ Association (ASA), which spends a great deal of effort monitoring companies and taking positions on governance issues.  ASA has a robust set of proxy voting guidelines and will even votes proxies for its members, if appointed to do so.

As I mentioned at the Roundtable, we need to use ‘push’ technology to automatically feed proxy voting information to news sites that retail investors frequent – sites that are currently news deserts on proxy voting issues. If retail shareholders see how pre-disclosing funds are voting, and why, many more are likely to vote… and they might be more inclined to vote with institutional investors than management.

Take Action: A small group of us are trying to start a low-cost or free newsfeed on pre-disclosed votes. The most difficult problem so far appears to be getting news services interested in receiving such a feed. If you have contacts at Bloomberg, Yahoo! Finance, Google Finance, Reuters, Dow Jones or other sites, please e-mail me contact information. 

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