Small minority of shareholders sponsor the vast majority of proposals, with specific interests in mind, according to Manhattan Institute study
A small group of shareholders, including groups with specific policy, political or religious goals, sponsored the majority of shareholder proposals in the latest proxy season, raising concern that the proxy process may be ‘harming the average diversified investor’, according to the Proxy Monitor 2012 report.
Labor union pension funds account for 36 percent of all shareholder proposals in the analysis of Fortune 200 companies through to July 15, according to the report from the Manhattan Institute’s Center for Legal Policy, which has studied proxy data from SEC filings back to 2006.
In second place come three individual investors and their relatives and family trusts, accounting for 31 percent of all such proposals, the report shows. ‘Socially responsible’ investors, or groups with political or social aims, account for 22 percent. Only 1 percent of proposals come from institutional investors.
The findings ‘challenge the efficacy of the shareholder-proposal process, at least from the perspective of the ordinary investor,’ concludes the report.
‘The prominent role being played by a small number of investors, most prominently labor union pension funds whose actions in this area appear to deviate from concern over share value, suggests this process may be oriented toward influencing corporate behavior in a manner that generates private returns to a subset of investors while harming the average diversified investor.’
The Proxy Monitor data also shows the percentage of shareholder proposals that receive majority backing has declined in recent years, to 6 percent in 2012 from 7 percent in 2011.
Majority backing in 2012 is less frequent than in any other year analyzed, the report notes. At the same time, the average shareholder vote is 25 percent this year, on par with previous years.
‘Econometric analysis of Proxy Monitor data shows there is no statistically significant difference between 2012 shareholder voting and other years; the decrease in voting this year instead appears to be attributable mostly to shifts in the composition of shareholder proposals,’ the report states.
The report further notes that voting recommendations by ISS, the proxy advisory and corporate governance solutions firm, has a sharp impact on voting behavior, with a positive recommendation increasing the ‘yes’ vote by 15 percent.
At the same time, ISS supports 63 percent of shareholder proposals while shareholders in general support less than 8 percent of all proposals.
Among socially oriented investors participating in the 2006 to 2012 proxy seasons, 42 percent are religiously affiliated, the report adds. But that number drops sharply to 15 percent in the 2012 season alone.
This year, public policy groups such as the People for the Ethical Treatment of Animals and the National Legal and Policy Center account for 61 percent of all socially oriented investors participating in the proxy season.
