ProxyPulse shows link between adverse Say-on-Pay and director votes

Apr 24, 2015
<p>Report on 2014 proxy mini-season by Broadridge and PwC reveals increase in number of directors who failed to get 70 percent support for re-election</p>

In its first edition of ProxyPulse for 2015, Broadridge Financial Services and PwC summarize the 2014 mini-season, which spans July through December. The report shows that overall 83 percent of institutional shareholders voted their shares during this time period, compared with 28 percent of retail investors. Among the former group, voting among owners of mid-cap companies was slightly higher than among owners of large and small caps, with all three categories at least 25 percentage points higher than among owners of micro cap companies.

Average support for directors rose slightly during the 2014 mini-season to 94 percent from 92 percent the year before. However, although fewer directors stood for re-election during the most recent period, a greater proportion of them failed to receive approval at the minimally acceptable 70 percent threshold. Most recently, 344 of 3,780 directors (9.1 percent) received less than 70 percent support, compared with 332 out of 4,064 directors (8.2 percent) in the 2013 mini-season. Low levels of director support at some companies extended back to their previous annual meeting, the report said. One-third of the companies that had a director fail to attain majority support last season also had a director fail to obtain majority support this season,’ the report said. IN addition, 46 percent of companies with a director who failed to exceed 70 percent support this season also had a director fail to do so last season.

Support for Say-on-Pay plans slipped to 80 percent from 83 percent in the prior mini-season. A notable exception was micro caps, which saw support for their Say-on-Pay plans climb to 80 percent from 71 percent in the 2013 mini-season. Among the report’s highlights is an observation about the link between the results of director elections and Say-on-Pay votes. ‘This season, 35 companies failed to attain majority support for their pay plans. Of this group, 30 companies also had a director election this season, and almost half had a director who failed to attain at least 70 percent shareholder support,’ the report says.

As in previous editions of ProxyPulse, Broadridge makes the point that low voting rates among retail investors -- 28 percent in the 2014 mini-season versus 27 percent the year before -- present companies with engagement opportunities, given that roughly 22.5 billion retail shares went unvoted. Among the tips for increasing retail voter turnout are (1) sending a reminder communication to these investors, possibly targeting those that voted in a previous year; (2) educating employee shareholders on governance and proxy items and encouraging them to vote; (3) making annual meeting materials easier to find on the company website; and (4) considering changes to how proxy voting materials are distributed with the makeup of the shareholder base in mind.

The latest ProxyPulse report also shows members of corporate boards taking greater interest in speaking with shareholders about their governance-related concerns. Sixty-six percent of directors now say they are communicating with institutional investors, up from 62 percent last year, the report said, quoting PwC’s 2014 Annual Corporate Directors Survey. ‘Twenty-six percent of respondents to the latest PwC survey said at least one director on their company’s board had engaged with activists,’ says Chuck Callan, senior vice president of regulatory affairs at Broadridge.

That said, ProxyPulse notes, ‘Some directors are reluctant to participate in direct communication with shareholders because they are concerned about having too many voices speaking for the company.’

Amended proxy advisor policies could impact voting in the current proxy season, the report says. ISS’s new scorecard approach to evaluating shareholder proposals concerning independent board chairs stipulates additional factors that need to be considered for a ‘generally for’ voting policy, including the absence or presence pf an executive chair and recent board and executive leadership transitions at the company. Glass Lewis now recommends a vote against any bylaw or charter amendment that adopts an exclusive forum for shareholder litigation unless the company provides a compelling argument as to why it benefits shareholders, the report says.       

As for ways for increase proxy voting levels, data shows that 1.8 million shareholder positions were voted via mobile device in 2014, a 50 percent increase from 2013, whose number was up 50 percent from 2012, says Callan. ‘In prior years, about one-third of those who used a mobile device to vote their proxies were first-time voters,’ who had owned shares but not voted them previously before mobile voting became available.

‘It really is a matter of going to where people are’ as far as voting method preferences are concerned, adds Callan.

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