Wednesday, May 21, 2014

2014 Proxy Season

Proxy issues are an interesting gauge of current and emerging corporate governance issues.  Even if the proposals don't pass, they provide a tool to take investors' and companies' temperature on controversial issues.  Alliance Advisors issued a detailed report on 2014 proxy season trends and expectations, which is available for download here.  A few highlights are discussed below.

  • Majority Voting. A trend towards majority voting proposals with support from ISS and Vanguard means that many companies will be facing pressure to consider changes to director elections.
  • Declassified Boards.  While the Harvard Law School Shareholder Rights Project has been successful in obtaining declassification of 23 of 13 target companies, the academic and industry debate continues about the efficacy or harm of classified boards.  
  • Board Tenure & Diversity.  These initiatives seek to turn the tide against board compositions that are dominated by white men who hold director positions for extended periods of time.

"ISS’s fall policy survey revealed that 74% of investor respondents consider board service over 10 years to be problematic. Similarly, a recent academic study of S&P 1500 companies found that firm value peaks when average director tenure reaches nine years, and then drops off by as much as 10%.


According to a 2013 Catalyst Census of Fortune 500 companies, the percentage of board seats held by women remained flat between 2012 (16.6%) and 2013 (16.9%)."

  • Proxy Voting Mechanisms.  Shareholder activist John Chevedden is pushing proposals such as enhanced confidential voting and uniform vote reporting to reform the proxy process.
  • Social Issues.   Under this diverse category of issues, a few standouts have potential significance in the 2014 season.
    • Political Spending.  Shareholder proposals for disclosures of political spending will increase in the wake of the SEC's decision not to pursue these disclosures as a part of its upcoming agenda.  The Center for Political Accountability has 60 proposals pending and another coalition is sponsoring 48.
    • Human Rights.  In the wake of the SEC's attention to conflict mineral disclosures, additional shareholder proposals are expected on the issue. 
    • Climate Change.  Citing to the midterm elections and the flagging climate change reform occuring at the federal level, increased climiate change proposals are expected, many of which will employ creative strategies to apply pressure on corporations.

"As part of a broader climate strategy, social and environmental activists are challenging companies’ political activities on energy and climate change, particularly their involvement with certain trade associations and legislative groups whom the proponents feel are obstructing progress on climate-related legislation."

-Anne Tucker

Anne Tucker, Corporate Governance | Permalink


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