Unclear how company will react
As governance professionals prepare for the height of the proxy season and a range of shareholder proposals, IBM has become one of many large companies to face pressure to boost investor influence.
IBM’s stockholders voted by 59.4 percent to 40.6 percent at the company’s recent annual meeting to adopt a proxy access bylaw – one that the board of directors had urged investors to reject. The change had been proposed by New York City comptroller Scott Stringer on behalf of the city’s five public pension funds, which have a total of more than $170 billion in assets under management.
It was unclear at the time of writing how IBM would respond to the vote. James Copland, senior fellow and director of legal policy at the Manhattan Institute for Policy Research, notes that such shareholder decisions are not binding. In practice, however, companies tend to take action following such votes, knowing that proxy advisory firms will not be pleased if they ignore shareholders’ wishes, he tells Corporate Secretary. One common response is for boards to adopt a revised version of a shareholder proposal if it gets majority support, he adds.
An IBM spokesperson did not respond to requests for comment.
The proposed proxy access by-law was written to require the company to include in proxy materials prepared for future shareholder meetings information about any person nominated for election to the board by a shareholder or group that meets certain criteria. As proposed, it would require IBM to allow shareholders to vote on such nominees.
Under the planned bylaw, the number of shareholder-nominated candidates appearing in proxy materials cannot exceed the larger of two or one quarter of the directors then serving. Those making director nominations must, among other things, have owned 3 percent or more of IBM’s stock for at least three years and must give the company certain information about the nomination, as dictated by SEC rules.
The comptroller argued that proxy access will make directors more accountable and enhance shareholder value. The proposal in the proxy materials also stated that between January 2015 and October 2016, 95 similar shareholder proposals received majority votes and at least 270 companies of various sizes enacted bylaws with similar terms.
IBM’s directors had urged shareholders to vote against the proposal. ‘It is the board’s view that IBM’s corporate governance policies already ensure your board is accountable to stockholders, and that this proposal would undercut the critical role your board, the independent directors, the directors and the corporate governance committee play in evaluating director nominees,’ they wrote in a regulatory filing.
They argued that, among other things, all IBM directors are elected annually, by a majority vote standard in uncontested elections; stockholders have the power to call special meetings; stockholders have numerous mechanisms to communicate with the board and non-management directors; and stockholders may submit proposals for consideration at an annual meeting and for inclusion in IBM’s proxy statement.
‘This proposal calls for you to approve a process that would enable special interest groups collectively owning as little as 3 percent of IBM’s outstanding shares to nominate directors who promote their own agendas, potentially at the expense of the long-term interests of stockholders,’ the board added.
Elsewhere, a shareholder proposal on disclosing IBM’s lobbying activities received 26.5 percent support from shareholders. Copland says this score is roughly in line with the level of support similar proposals have attracted in recent years. Similarly, a proposal to give holders of 10 percent of IBM’s stock the power to call a special shareowner meeting was defeated with 37.7 percent support. Copland describes this as broadly consistent with similar proposals, the majority of which have not been approved.
An advisory vote on executive compensation was passed with 54.3 percent support among shareholders. Ninety percent of shareholders backed having such votes on executive compensation every year.