Views on improving the integrity of global capital markets
13 June 2012

Shareowners Gain Leverage Through Proxy Access at Nabors Industries, Chesapeake Energy

Matt Orsagh, CFA, CIPM

Last week two shareowner-sponsored proxy access proposals won majority support at U.S. companies — a momentous occasion for those in favor of shareowner access to the proxy. Before we get into the details at each company, let’s review the proxy access landscape in the U.S. 

In 2011, an appeals court rejected an SEC proposal that would have provided shareowners a one-size-fits-all rule to list their own director candidates on the corporate proxy.The SEC is not expected to take up the cause of proxy access in the immediate future, so private ordering, or shareowners (and in some cases companies) asking that proxy access be added to a company’s bylaws, has become the only proxy access game available to U.S. shareowners. 

Some companies have offered their own plans as a compromise with shareowners, the most noteworthy being Hewlett-Packard, which negotiated with shareowners before agreeing to put a proxy access bylaw up for vote at its 2013 annual meeting. To qualify for such access, shareowners would have to hold 3 percent of the company’s shares for three years, and shareowners would be limited to 20 percent of the board seats.

At Pioneer Natural Resources, Norges Bank Investment Management withdrew its proposal after the board adopted majority voting and sponsored a proposal to declassify the board. Norges Bank originally targeted six U.S. companies this proxy season with proxy access proposals. 

The SEC has permitted companies to exclude many proxy proposals based on the most common proxy access template offered by the U.S. Proxy Exchange (USPX), a non-profit shareowner group. These non-binding proposals requested a bylaw amendment permitting holders of 1 percent of the outstanding stock for a two-year period, or 100 holders who satisfy the $2,000/one-year requirement of Rule 14a-8, to include director nominees in the company’s proxy statement. The SEC staff agreed with the companies that this proposal could be excluded on two separate bases:

  • The proposal constituted multiple proposals in violation of Rule 14a-8(c), due to the inclusion of a provision stating that an election of proxy access nominees would not represent a “change in control” of the issuer. See letters to Bank of America, Goldman Sachs, and Textron
  • The proposal was vague and indefinite under Rule 14a-8(i)(3) because it referred to the eligibility requirements of Rule 14a-8 without explaining what these requirements were. See letters to Chiquita BrandsMEMC Electronic Materials, and Sprint Nextel.

The SEC has not allowed companies to exclude all proxy access proposals, however, as the binding proposals by Norges Bank requiring 1 percent ownership have more or less been allowed by the SEC. Nonetheless, the SEC denied Norges Bank’s request to reconsider a no-action ruling that allowed Staples Inc. to omit its access proposal. The company argued that the binding proposal would conflict with a pre-existing company bylaw. 

Now on to the recent developments at Nabors and Chesapeake:


On 5 June, 56 percent of shareowners at Nabors Industries voted to give shareowners who own at least 3 percent of the company’s shares for three years the right to nominate directors on the company’s proxy ballot, for up to 25 percent of the board.

These thresholds (3 percent for three years) are the same proposed by the SEC in the universal proxy access proposal struck down in 2011. The proposal was submitted by a group of New York City pension funds led by the City Comptroller of New York, and co-sponsored by funds in California, Illinois, Connecticut, and North Carolina.

The shareowner group that filed the proposal pointed to a number of issues at the company that it felt warranted shareowner power to nominate directors, including: a $100 million award (which the CEO later waived) the year before; related-party transactions involving board members; and a lack of majority voting for board members. In 2011, the $100 million award was triggered when the CEO relinquished his title but did not leave the company. Shareowners were a bit perturbed by this development and voted “no” on the company’s “say-on-pay” vote. The SEC also launched an investigation into Nabors’ disclosure of aircraft perks after the Wall Street Journal reported that flight logs showed many flights to the CEO’s homes that did not appear to be reported in the proxy statement. 

With proxy access now in place at Nabors, we will have to wait until next year to see if investors indeed use their newfound power to gain seats on the board.


The corporate governance problems at Chesapeake have been well documented, including on this very blog. Even before the company’s annual meeting on 8 June, the board endured a shakeup that granted investors Southeastern Asset Management and Carl Icahn four board seats between them. Southeastern and Mr. Icahn collectively own about 21 percent of the company’s shares.

Then came the annual meeting, at which Chesapeake shareowners loudly rebuked the board and management. Here are some highlights/lowlights:

  • Two directors resigned from the board after receiving less than 30 percent shareowner support
  • Only 20 percent of shareowners voted in favor of executive compensation
  • Over 50 percent of shareowners voted to reincorporate the company in Delaware
  • 60 percent of shareowners voted for proxy access
  • 36 percent of shareowners asked for an annual report on lobbying

Some of these results were already “baked into the cake,” as a handful of directors would be leaving anyway with the Southeastern and Icahn slate set to take their seats on the board. Also, shareowners will have likely gotten what they wanted as far as board representation goes, with the new board reconstituted with Southeastern and Icahn representatives, including an independent chairman — making the need for proxy access less immediate.

What’s Next?

The burgeoning private ordering of proxy access will likely give shareowners more leverage in dealing with boards at U.S. companies, even if that power is only to negotiate for corporate governance improvements or for shareowner representation on the board. But, as far as shareowners are concerned, that is the point. Like pushes for majority voting and say on pay before it, the drive for proxy access is an effort by shareowners to hold boards more accountable to the ultimate owners of a corporation: the shareowners. The process will surely evolve, with even more proxy access proposals expected in 2013.

Given these recent successes for private ordering, it doesn’t look like investors are waiting for the SEC to take action.

About the Author(s)
Matt Orsagh, CFA, CIPM

Matt Orsagh, CFA, CIPM, is a senior director of capital markets policy at CFA Institute, where he focuses on corporate governance, ESG, and climate change analysis. He writes and speaks frequently on these topics on behalf of CFA Institute. His paper, Climate Change Analysis in the Investment Process was named “Best ESG Paper” by Savvy Investor in 2021.

4 thoughts on “Shareowners Gain Leverage Through Proxy Access at Nabors Industries, Chesapeake Energy”

  1. Great summary of where we stand on proxy access. USPX will continue to revise proposals until we work through the SEC’s no-action process. We don’t want the 3% held for 3 years backstop proposal because we believe it is more symbolic than being a real tool. Proposals are in to Medtronic, Forest Labs and H&R Block. If those don’t make it, we’ll keep revising. Through an iterative process we hope to come up with a model that can make a real difference and can be applied in many more situation where entrenched boards are failing to hep companies reach their potential.

  2. Matt Orsagh says:

    Thank you for your comment Jim,

    We will keep following the proxy access issue and are interested to see how private ordering develops in the coming year.


  3. Terry says:

    good !

  4. serp checker says:

    good !

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