2015 US proxy season roundup

Sep 08, 2015
<p>A look at the big proxy themes of the year, from proxy access to say on pay and director communication</p>

The standout story of this year’s proxy season has undoubtedly been the call for proxy access, which spread across companies in the US, with a number of firms – including GE and Bank of America – changing bylaws to allow ‘three and three’ (3 percent of shares held for at least three years) proxy access.

The latest ProxyPulse report from PwC and Broadridge shows that in addition to the companies that opted to add proxy access without going to a vote, there were votes on more than 80 shareholder proposals for proxy access (from January 1 to June 30). Seventy percent of these received majority support at an average 57 percent of votes cast, notes the report. This development, write the authors, ‘is significant given that during the 2014 proxy season, only 10 proposals were voted on, with three attaining a majority’.

Interestingly, there is a large gap between votes cast by institutional investors and those voted by retail investors, adds ProxyPulse: ‘By a significant margin, retail shareholders did not support proxy access, as 85 percent of the shares they cast were against such proposals. On the other hand, institutions voted 61 percent of their shares in favor of proxy access.’

The authors expect ‘well over 100’ proxy access shareholder proposals will have come to a vote by the end of the 2015 season, with many of these having been submitted by the Office of the New York City Comptroller. They note, however, that shareholder rights appear to be the driving force behind the proposals, rather than dissatisfaction with any specific directors.

The report also covers say on pay, director elections, director communications with investors, share ownership and retail voting participation. 

Say on pay

Ten percent of companies failed to gain the support of at least 70 percent of the shares voted, though this is an improvement from last season when 13 percent failed to surpass this benchmark. Of the companies that failed to gain 70 percent support in 2014 and had another say-on-pay vote this season, 40 percent failed to pass that threshold again. At the same time, however, 36 percent of the companies that failed to pass the 70 percent threshold in 2014 gained at least 90 percent support this year.

Poor say-on-pay performance in one year often translates into director support the following year, according to the report authors. ‘Forty-six percent of companies that failed their say-on-pay vote in 2014 and had a director election this season had at least one director fail to receive 70 percent support,’ they write.

Director elections

Of the almost 23,000 directors standing for election in the 2015 season, 1,184 failed to garner more than 70 percent shareholder support, though average support for directors stood at 96 percent. In total, 345 individual directors at 169 firms failed to gain even majority support from shareholders.

Director communications

Boards are increasingly acknowledging the importance of investor communication. In 2013 two thirds of respondents ‘indicated a willingness to communicate on executive compensation’. This increased by 11 percentage points in 2015. ‘Similarly, two thirds of directors believe it’s appropriate to communicate with investors regarding company strategy’, up from 45 percent in 2013, notes the report. The same number also believe it’s appropriate to communicate with investors regarding risk oversight, compared with 48 percent in 2013.

Share ownership

Sixty-eight percent of US public company shares are held by institutional investors. The ProxyPulse report breaks this down further by market cap, noting that institutions hold only 28 percent of the shares of micro-cap companies, compared with 72 percent of the shares of large-cap companies.

Voting participation

While institutional investors voted 91 percent of their shares this season, voting rates vary; 72 percent of institutional shares were voted at micro-cap companies – an 8 percentage-point drop from the previous season – compared with 91 percent at large-cap companies.

Splitting roles

Across the US proxy season so far, there have been 57 shareholder proposals to split the role of chair and CEO, according to ProxyPulse, with only three receiving majority support. But the number of companies with split roles continues to increase. ‘Fifty-seven percent of directors say their companies have already separated the roles, and 11 percent are considering doing so at their next CEO succession,’ the report states.

The ProxyPulse report is based on data gathered from 4,280 annual meetings held between January 1 and June 30, 2015.

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