Final comment letter to the SEC on Shareholder Proposals, re File Number 4-725, including 11 recommendations highlighted on bold. Thanks to several readers for their excellent suggestions for improvement. See prior post: SEC Proxy Process Video 11-15-2018
Tag Archives | shareholder proposals
2018 CPA-Zicklin Index shows gradual improvement. Public corporations embracing disclosure and accountability of their political spending hold fast despite countervailing pressures from Washington. Continue Reading →
Netflix Approach to Governance: Genuine Transparency with the Board (download) by David F. Larcker and Brian Tayan takes a look at one aspect of corporate governance at Netflix and finds “a radically different approach to information sharing” by management with the Board. Shareholders are largely left out of the equation.
Netflix Approach to Governance: Management
Netflix Approach to Governance has the appearance of a balanced look at how management shares information with the Board. There is no suggestion the approach can be widely copied. Says Larker,
I think it would be hard to put this type of system in place at older and more mature organizations. Innovative organizations that want and need the insights from board members can clearly adapt this type of approach. You need a CEO who wants a high level of discussion about strategy, etc., and is open to alternative points of view.
Transparency works at Netflix, at least in part, because CEO Reed Hastings understands board members would not have the confidence to make tough calls unless they have a better understanding of the company.
Transparency is hard to argue against, unless it leads to directors leaking information that reaches competitors. Larcker and Tayan interviewed CEO Reed Hastings and most of the board members. They describe two key features of what they appear to believe is remmanagement transparency.
Board members attend monthly and quarterly senior management meetings as observers. Communications to the board take the shape of approximately 30-page memos that are heavy on analysis and contain links to all relevant data on the company’s internal computer systems. (Another Netflix Disruption: A Transparent Board)
More frequent meetings with senior staff and more information allows Netflix directors to work more effectively, since they are better able to assess strategic developments. It is hard to tell what impact transparency is having on the company but,
Netflix has been enormously successful over the last five years. Revenues have nearly tripled, increasing to $11.69 billion from $4.4 billion at the end of 2013, while the market cap soared to $133 billion from $4.4 billion.
Directors like the approach.
The overall tone Reed has set, really from early days, is around transparency. … There is no editorializing. There’s no censorship.
It’s just a deep desire to hear rational, well-argued pros and cons of any decision.
No censorship and frank discussions between management and board; if other companies are not operating that way, why not? Equally important, why does that approach not carry through to the relationship between shareholders and the board?
Netflix Approach to Governance: Shareholders
Their research, part of the informative Stanford Closer Look Series, begins with the following sentence:
The hallmark of good corporate governance is an independent-minded board of directors to oversee management and represent the interests of shareholders.
The only other significant reference to shareholders comes later in the following sentence:
While fiduciary rules allow directors to rely exclusively on information provided by management, dynamics such as these can reduce the quality of that information and impair their ability to make good decisions on behalf of shareholders.
Even through the law allows directors to rely on what the CEO and other senior executives tell them, directors make better decisions when the company is more transparent – when they can observe meetings further down the chain and have more direct access to company relevant data. Yet, the Netflix approach to governance appears one-sided. Transparency and dialogue are missing when it comes to management and shareholders.
As I pointed out in a recent post, Netflix has repeatedly ignored shareholder votes. (Will Netflix Ignore Stockholders Again?) While proxy proposals are generally precatory, most companies implement those receiving a majority vote and often those that do not. The Netflix approach to governance appears to ignore proxy votes whenever legally possible.
- In 2014 a majority voted to declassify the board and to require a majority vote to elect directors.
- In 2015 similar proposals were voted and won. A majority of shareholders also voted against director Barton, who, although he lost, was up for reelection this year.
- In 2016 a majority of shares were voted in favor of proxy access, reducing supermajority vote requirements, and declassifying the board.
- In 2017 a majority of shares were voted in favor of proxy access, to declassify the board, to require a majority vote for electing directors and to eliminate all supermajority voting requirements. As far as I know, none of those proposals were implemented by the Board.
- In 2018 a majority of shares were voted in favor of the following:
- Reduce Ownership Threshold for Shareholders to Call Special Meeting (57%)
- Adopt Proxy Access Right (58%)
- Provide Right to Act by Written Consent (52%)
- Adopt Simple Majority Vote (85%)
- Amend Bylaws (72%) This was a binding proposal to require directors in uncontested elections to be elected by a majority of shares voted
Given the Netflix approach to governance with regard to shareholders, I expect the only proposal that will be adopted from this year is the binding proposal to require a majority vote in uncontested directors elections. The vote in favor surpassed the bylaw requirement of a two-thirds threshold.
Although I do not question the scholarship of Larcker and Tayan, their discussion of the Netflix approach to governance would benefit from an examination of shareholder relations with the board. We hope that is on their agenda for a closer look.
Netflix Approach to Governance: Other Views
- Netflix Shareholders Again Fail to Change Rules to Elect Board Members by Simple Majority Vote
- Consider Director Conduct at the 2018 Netflix annual meeting when you vote regarding directors in 2019
- Netflix Rejects Claims That Exec Bonuses Hurt Shareholders
- Netflix investors, once again, seek change in proxy access, voting rules
The Board at Berry Global Group ($BERY) is moving toward more democratic governance, thanks to the efforts of a retail shareholder who would be denied the right to file proposals if the Chamber of Commerce, Business Roundtable and others had their way. The Berry Global Group has adopted proposals submitted by the same small retail shareholder three years in a row. Together, the Board and a small retail shareholder are making a good company even better.
This year, in response to a proposal we filed on behalf of my wife, Myra Young, the Board of the Berry Global Group amended its bylaws and governance guidelines to require a majority vote for directors running in uncontested elections and further requiring that unsuccessful nominees tender their resignation. (8-K filed November 30). We are gladly withdrawing the proposal, which was implemented in full. Continue Reading →
The CEO Pay Machine: How it Trashes America and How to Stop it (Amazon) by Steven Clifford should be mandatory reading for all compensation committees and those who vote proxies for large funds. The book is easily read and understood by the layperson. It also includes the fact-based evidence needed to convince fiduciaries that voting against most executive pay packages is one of the first steps to restoring shareholder value, company sustainability and the very foundations of American democracy.
Why combine CEO and chair positions or pay executives with options when both practices lead to poor results? We don’t except “everyone else does it” as an excuse for harmful behavior from our teenagers; why should we accept it as a reason from compensation consultants and the former CEOs sitting on most corporate boards? Clifford also outlines possible remedies but nothing will be done unless we shift public opinion. If widely read and discussed, The CEO Pay Machine could be central to change. Continue Reading →
The U.S. Chamber of Commerce Center for Capital Markets Competitiveness (CCMC) released a paper on shareholder proposal reform, which contains a “set of recommendations for the SEC on fixing the broken Rule 14a-8 system in order to protect investors and make the public company model more attractive.” See also the Chamber’s press release, U.S. Chamber Offers Recommendations to SEC on Shareholder Proposal Reform.
Rule 14-8 is not broken, many of the Chamber’s attestations are alternative facts and its recommendations are more likely to hurt our economy than help it. The paper is very similar to their previously released Responsible Shareholder Engagement And Long-Term Value Creation: Modernizing the Shareholder Proposal Process. As I wrote in my rebuttal last year (Business Roundtable to SEC: Muzzle Shareholders),
‘modernization’ for the Business Roundtable means moving the SEC further and further from its primary mandate of ‘investor protection’ by creating a democracy-free zone for entrenched managers.
Corporate lobbying disclosure remains a top shareholder proposal topic for 2016. At least 66 investors have filed proposals at 50 companies asking for lobbying reports that include federal and state lobbying payments, payments to trade associations used for lobbying, and payments to any tax-exempt organization that writes and endorses model legislation. Political activity remains a top investor topic for the sixth consecutive year, with more than 90 proposals filed for 2016 that seek disclosure of either lobbying or political contributions. Continue Reading →
Who Withdraws Shareholder Proposals and Does It Matter? An Analysis of Sponsor Identity and Pay Practices is the title of an import study in the November 2015 issue of Corporate Governance: An International Review. Examination of this topic is long overdue. Companies constantly take full credit for corporate governance reforms, such as the addition of proxy access bylaws, when they are doing so only to avoid a vote on a more robust shareholder proposal. Continue Reading →
There has been much controversy in recent years surrounding the dual role of chair and CEO. The number of independent chair shareholder proposals seeking to separate the two positions has increased significantly and continues to rise. Both Disney and Starbucks have faced this issue in the past and shareholders once again have proposed to split the roles of chairman and CEO.
Will the momentum behind the independent chair proposals be enough to carry the vote? Or will Disney’s and Starbucks’ recent positive performance shield them from the ire of corporate gadflies? Can a combined chair-CEO truly be subject to adequate oversight?
Yesterday (2/10/2015), Corp Fin Director Keith Higgins delivered this interesting speech entitled “Rule 14a-8: Conflicting Proposals, Conflicting Views.” There are some really interesting things in this speech on counterproposals, etc., although there isn’t much that helps those companies grappling with proxy access shareholder proposals this proxy season (but there is some, such as #6 below). Here’s some notables from Keith’s speech: Continue Reading →
Some have argued that Ralph Nader started socially responsible shareholder activism with Campaign GM, when the group filed shareholder proposals to expand GM’s board to include consumer advocates and empower shareholders to place their board nominees on GM’s proxy ballot (proxy access). According to a recent article in the WSJ, the longtime consumer advocate is now putting together a shareholder-activism group. (Ralph Nader Adds Shareholder Activist to His Portfolio, 1/15/2014) Continue Reading →
This guest post by Lucian Bebchuk originally appeared on the Harvard Law School Forum on Corporate Governance and Financial Regulation on April 9, 2013 as Wachtell Lipton Was Wrong About the Shareholder Rights Project and is reproduced here with Professor Bebchuk’s permission. Martin Lipton quickly rebutted in a post entitled A Reply to Professor Bebchuk.
The Shareholder Rights Project (SRP) is a clinical program operating at Harvard Law School and directed by Professor Lucian Bebchuk. The SRP works on behalf of public pension funds and charitable organizations seeking to improve corporate governance at publicly traded companies, as well as on research and policy projects related to corporate governance. Continue Reading →
On October 16, 2012, the SEC published another “Staff Legal Bulletin” with guidance on shareowner proposals submitted to public companies pursuant to Rule 14a-8. SLB No. 14G provides the Division of Finance’s views regarding:
- Proof of ownership under Rule 14a-8(b)(2)(i) for purposes of verifying whether a beneficial owner is eligible to submit a proposal;
- the manner in which companies should notify proponents of a failure to provide proof of ownership; and
- the use of website references in proposals and supporting statements. Continue Reading →
Last week I attended an SEC meeting with “key stakeholders in the shareholder proposal process to engage in an open and productive dialogue” about the staff’s involvement in the process. (my emphasis) From the invitation: Continue Reading →
Highlights from Thomson Reuters IRHub Blog Trends in Activism and Say on Pay.
Executive compensation and board-related issues, including withholding votes for Directors who are members of executive compensation committees, are the top concerns of shareholders. Other corporate governance issues include too much Continue Reading →