Shifting priorities in activist investor proposals in first half of 2014
Amid growing satisfaction among shareholders that advisory votes on executive pay at annual shareholders meetings have advanced engagement with companies, the rate of withdrawals of investor proposals doubled in 2014 from a few years ago. That’s largely the result of companies deciding to pre-empt a vote on particular investor requests by implementing their own reforms voluntarily.
But it’s not only engagement that drove voluntary reforms. Guidelines on board responsiveness from proxy advisory firm ISS also spurred a dramatic rise in management proposals on issues previously championed by activist investors.
Those are among the conclusions of The Conference Board’s latest report, titled Proxy voting analytics (2010-2014), which also cites evidence that investors are focusing on new issues such as restricting golden parachutes. Five such proposals received majority support at annual general meetings held during the first six months of 2014. The most frequently submitted proposal this year concerned disclosure of political spending and lobbying activities. Five of 86 such voted proposals received more than 40 percent support this year, compared with one in 2013.
In the executive summary of its report, The Conference Board describes shareholder support for proxy access resolutions as reaching ‘a tipping point’ in the first six months of this year with five receiving majority approval and another four getting more than 40 percent support.
There was also a high volume of proposals to split the chairman and CEO roles, while the average support level of 31 percent has not grown much from prior years, according to Melissa Aguilar, a researcher in The Conference Board’s corporate leadership department and co-author, with Matteo Tonello, managing director of corporate leadership, of the report.
‘We’re still seeing a lot of those proposals because investors still want to have that conversation with companies and get to have that engagement about why those roles are combined,’ she says. ‘There have been companies that have made a concerted effort to expand the responsibilities of their lead director. That could be one reason we’re not seeing a huge groundswell of support for splitting the roles in all cases.’
These proposals may also be leading to dialogue between investors and companies, during which companies are successfully explaining their rationale for not splitting the roles, Aguilar adds.
This year, between January 1 and June 30, 62 out of 72 proposals from Russell 3000 companies calling for an independent board chair went to a vote at general meetings, versus while 48 out of 56 such proposals from companies in the S&P 500 Index went to a vote. ‘The overwhelming majority in both indexes were filed by individual sponsors -- more than half -- rather than institutional investors,’ says Aguilar.
There was a 43 percent drop in proposal volume from labor-affiliated investment funds from 2010, before say-on-pay votes became prevalent at US companies’ general meetings. Some of these funds seem to have forsaken activism for now while the three most frequent sponsors in this group -- the United Brotherhood of Carpenters, The American Federation of State, County and Municipal Employees and the AFL-CIO -- submitted far fewer proposals in 2014 than last year. However, the slight dip in proposals sponsored by labor unions from 2013 (35 vs. 39) even as the number of social and environmental proposals filed by this group has grown suggests that ‘labor unions may be reassessing their policy priorities following their recent accomplishments in the executive compensation area,’ the executive summary said.
More than 20 percent of the 86 proposals submitted by labor unions this year targeted financial companies, ‘ a very high proportion considering the history of activism by this type of funds and their traditional focus on industrial sectors,’ according to The Conference Board.
The report notes that while shareholders are concentrating more on social and environmental proposals across a broader range of businesses, proponents of corporate governance resolutions are shifting their attention toward smaller companies whose rate of adoption of shareholder-friendly practices is lower.
Proposals for board declassification are a prime example, says Aguilar. Companies in the S&P 500 received four such proposals this year, all of which went to a vote, compared with 17 in the first half of last year, 15 of which went to a vote. More than 40 such proposals were submitted for these companies in January through June 2012. ‘The numbers were smaller this year because many of the [large] companies that have gotten proposals have already made changes,’ says Aguilar.
But the drop-off was also evident among Russell 3000 companies -- 16 declassification proposals this year versus 32 in the first half of 2013. 'For all the debate over whether or not declassified boards are the right way to go for all companies, when those proposals go to a vote they get very high levels of support, over 80 percent,' she says.