Proxy Access Update – July, 2016
As the 2016 proxy season draws to a close, Morrow Sodali has prepared the following update on proxy access proposals and bylaws.
2016 Proxy Access Proposals
Shareholder Proposals. As of July 7, 2016, a total of 79 shareholder proposals have gone to a vote in 2016, with another currently pending. Nearly half of the shareholder proposals presented so far this year have failed to achieve a majority vote. Based on the results we have tracked to date, it is clear that shareholders are less supportive of proxy access shareholder proposals when a company has already adopted its own proxy access bylaw.
Shareholder proposals aiming to modify existing bylaws by increasing the percentage of proxy access nominees and eliminating the group aggregation limit were not successful. In 16 cases in which the company had an existing bylaw featuring a 3% ownership threshold, not one shareholder proposal received majority support. Shareholder proposals to modify the ownership threshold requirement from 5% to 3% received mixed results – three passed and four failed.
The case is very different for companies that did not have an existing proxy access bylaw, in those cases 36 shareholder proposals passed and 15 failed – three additional proposals were voted on but ultimately not presented at the meeting.
Management Proposals. Management proposals featuring a 3% ownership threshold have garnered high shareholder approval – all of these proposals received a favorable vote over 80% of the shares voting. Only at Abercrombie & Fitch Co., where the proposal required 75% of the shares outstanding, did a management proposal fail – the proposal received support from just over 65% of the shares outstanding.
Five companies had competing management and shareholder proposals; in three of those cases, management was able to defeat the shareholder proposal (the three shareholder proposals requested holding 3% for 3 years, but also requested an unlimited group size and access to 25% of the Board, while the companies’ bylaws limited both group size and access to the board). The two management proposals that failed to receive majority support featured a 5% ownership threshold compared to the competing and ultimately passed shareholder proposal featuring a 3% ownership threshold.
No Action Letters and Company Adopted Proxy Access
Over 100 companies received a proxy access shareholder proposal that was not included in the proxy due to the proposal being negotiated away or the SEC allowing it to be omitted. In 2016, the SEC permitted over 40 companies to exclude a proxy access shareholder proposal, while six companies had their request denied. The companies that were granted relief had either adopted a proxy access bylaw or included a similar management proposal in their proxy. This contributed to the rise of companies proactively implementing bylaws which had a limit on the group size and/or less than 25% access to the board; with a total of 113 companies adopting proxy access so far in 2016 versus 118 in all of 2015. Some shareholder proponents such as James McRitchie were not happy to see this and continue to speak out against what they term “proxy access lite”.
ISS and Glass Lewis Recommendations
ISS supported 78 of 80 shareholder proposals they have issued a recommendation on so far in 2016. Of those they recommended against, one proposal, received by CSP Inc., sought access to the greater of 20% of the board, or two board seats. While this proposal is seemingly standard, the CSP board consists of only five directors therefore two seats would mean proxy access candidates could represent 40% of the company’s directors. The other proposal, received by People’s Financial Services Corp., would have allowed holders owning 1.5% for two years the ability to nominate directors for up to 25% of the board.
Out of 21 management proposals, ISS recommended against three proposals – two featured a 5% ownership threshold and had competing shareholder proposals at a 3% ownership threshold and the other included an aggregation limit of 10 persons only increasing to 25 persons with an increase of the company’s market capitalization.
Glass Lewis supported 61 of 80 shareholder proposals they have issued a recommendation on so far in 2016. Of 16 companies facing a shareholder proposal with an existing bylaw in place, they recommended against the shareholder proposal in 14 cases. The two shareholder proposals they supported sought to eliminate a one year post-meeting holding requirement and a two-year resubmission requirement even if the director nominee is subsequently elected. Of those with competing shareholder and management proposals, they recommended against three shareholder proposals, going against management only when they featured a 5% ownership threshold. Similar to ISS, Glass Lewis recommended against the proposals at CSP Inc. and People’s Financial Services Corp. for the reasons stated above.
We have been monitoring proxy access since its inception to better assist our clients and will continue to provide you with updates regarding this important topic.
Please contact your Morrow Sodali representative if you have any questions.
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