Proxy access most prominent shareholder proposal topic in 2015
Proxy access is clearly the shareholder proposal issue that is garnering the most attention this year, according to the fourth and final part of the EY Center for Board Matters report, ‘2015 Proxy season insights’, which was released earlier this week and outlines this year’s shareholder proposal landscape. The findings of the report's first three sections are based on conversations with 50 institutional investors, investor associations and advisers about their corporate governance views and priorities, with additional insights gathered from investors, directors, corporate secretaries and advisers during 'dialogue dinners' in New York and Chicago.
EY reports that the number of proposals seeking proxy access increased fourfold from last year. ‘The broad investor support for these proposals and early adoption of proxy access by some leading companies [such as General Electric] suggest that momentum for this reform is here to stay,’ the report says.
In terms of proposal categories, environmental and social topics continue to dominate the field this year, accounting for 52 percent of all shareholder proposal submissions. That extends the steady increase in this category from 46 percent in 2014 and 39 percent in 2013. According to EY, proposals in this category are most likely to be withdrawn, as a result of companies and proponents reaching agreement. So far this year, 17 percent of environmental and social proposals have been withdrawn due to agreements, versus a range of 5 percent to 14 percent for other categories. Topics for some of the most commonly withdrawn environmental and social proposals include corporate diversity and equal employment opportunity policies, reduction of greenhouse gas emissions, sustainability reporting and disclosure and oversight of political and lobbying expenditures, the report shows.
The proposal withdrawal rate overall is down slightly at 17 percent this year compared with 18 percent in 2014, with 70 percent of withdrawals having been made based on agreements reached between companies and investors.
Other sections of the EY report focused on issues such as board composition, shareholder activism and engagement opportunities and optimizing proxy communications. Among the key findings is that disclosures about board composition can be improved by ‘making more explicit which directors on the board are most qualified to oversee key areas of risk for the company and how director qualifications align with strategy.’ EY also finds that increased transparency about how board candidates are identified and vetted and the process for supporting board diversity may also give investors more confidence about the nomination process.
When it comes to approaches to board renewal, the report shows that rigorous board evaluations -- including of individual board members -- and director term limits are seen as the most effective ways to stimulate board refreshment while setting a director retirement age and classifying long-tenured directors as not independent are viewed as the least effective mechanisms.
It’s become clear to EY that investor concerns about director succession planning are no longer triggered mostly by companies’ financial performance and decisions. Rather than an interest in details based on possible events within given timeframes, ‘it’s more the broader question of the investor [wanting] to see that the board has ongoing, robust processes in place for evaluating the different components, and is prepared for different kinds of eventualites’ says Kellie Huennekens, assistant director at the Center for Board Matters. ‘This is part of the investor’s approach to keeping an eye out for long-term shareholder value and how is the board protecting it through evaluating directors or succession planning processes.’
That represents an emerging shift from investors’ historical focus on possible correlations between poor performance and the amount of attention given to corporate governance. ‘Now you’re seeing a close focus on governance practices regardless,’ says Heunnekens, who adds that this is a general trend and not true for every investor.