Proxy Access Court Decision Fallout: Bank on More Proxy Contests)
that there will most certainly be an uptick in proxy contests and/or shareholder proposals calling for proxy access in 2012. Institutional Shareholder Services (ISS) concurs with my theory in its 2011 U.S. Postseason Report on the recent concluded proxy season.
In its Aug. 1 Preliminary 2011 U.S. Postseason Report
, ISS made many observations about the 2011 proxy season and included some predictions for the 2012 proxy season. Among its predictions, it said, “the unavailability of a market-wide access regime could mean a rise in traditional boardroom challenges via proxy fights and a jump in ‘vote no’ campaigns against directors.” It made this statement in relation to the July 22 U.S. appeals court ruling that struck down the SEC’s proxy access rule [at least Rule 14a-11] that was challenged by the U.S. Chamber of Commerce and Business Roundtable.
I pointed out in my July 26 post that shareholder groups will take advantage of the amendment to Rule 14a-8
as a backdoor way toward proxy access. My point was that the SEC, in its statement following the court’s decision, reminded investors that they still had the power to propose their own proxy access proposals under the amended rule. ISS embellished upon the same point:
“In the meantime, it appears that investors may be able to take advantage of the SEC’s amendments to Rule 14a-8, which were not challenged by business groups, and file access bylaw proposals next season. The SEC had issued a stay on the Rule 14a-8 changes after the lawsuit was filed, but that may be lifted before the filing deadlines for most 2012 meetings. Shareholder activists are discussing now whether it makes sense to file access proposals next season and how many companies to tar-get. It appears likely that any investor resolutions would seek more permissive standards than Rule 14a-11’s requirement to hold a 3 percent stake for at least three years.”
As for other predictions of the 2012 proxy season, ISS expects shareholders to push more board declassification and majority voting proposals with more of the focus on mid-cap companies as the large-cap firms adopt such reforms.
The report, which I first read about in a Compliance Week blog post
by Reese Darragh, has some key takeaways that you may or may not have known regarding the 2011 proxy season:
- During the first year of advisory votes on executive compensation under the Dodd-Frank Act, investors overwhelmingly endorsed companies’ pay programs, providing 91.2 percent support on average.
- Shareholders voted down management Say on Pay proposals at 37 Russell 3000 companies, or just 1.6 percent of the total that reported vote results. Most of the failed votes apparently were driven by pay-for-performance concerns.
- Among governance proposals, the biggest story of this year was the greater support for shareholder proposals that seek board declassification. These resolutions averaged 73.5 percent support, up more than 12 percentage points from 2010, and won majority support at 22 out of 23 large-cap firms.
- Majority voting proposals averaged almost 60 percent support, while proponents reached settlements with more than 30 firms. Independent chair proposals fared better this year, winning majority support at four companies.
- The arrival of Say on Pay contributed to a significant decline in shareholder opposition to directors. As of June 30, just 43 directors at Russell 3000 firms had failed to win majority support, down from 87 in the same period in 2010.
I guess I was on to something last month when I blogged (