End-of-Summer Reading: A Review of the 2012 U.S. Proxy Season
Most of the annual meetings and proxy voting at U.S. companies take place in the spring and early summer, meaning that for the most part key trends from the 2012 proxy season are well established. Although a number of companies will have annual meetings and proxy votes in the coming months, we can already look back and take stock of 2012, as well as speculate on what 2013 will hold.
So in the spirit of shaking off the summer doldrums and sending our kids go back to school, we offer you a little homework. There will not be a test to make sure you understand the material because we know we can trust you to do your homework, right? Please take a look below at some different takes on proxy season from a number of well-known sources:
- Law Firm Sullivan and Cromwell
- Eagle Rock Proxy Advisors
- Glass Lewis (report available for purchase)
- ISS (not available yet — usually posts around end of September/early October)
“Say on Pay”
“Say on Pay” continues to be the headline grabber for this proxy season in the U.S. The rate of “no” votes on pay (or those that garner less than 50 percent support for executive pay) increased from 2011 to 2012, but still only make up about 3 percent of listed companies. Although the absolute number of “no” votes went up, we are seeing more investors and companies hash out their differences on pay well in advance of the spring annual meeting. If this kind of cooperative behavior continues, expect failed say- on-pay votes to peak in the near future and then begin to come down. That is unless the nature of say-on-pay voting changes — see Australia’s “two-strikes rule” for a harsher punishment for boards.
Some important highlights:
- 97 percent of companies passed say on pay (versus 99 percent in 2011)
- 53 companies failed say-on-pay votes (compared with 44 such failures in 2011)
- 5 companies have now failed two years in a row (Cooper Industries, Hercules Offshore, Kilroy Realty, Nabors Industries, Tutor Perini)
- Proxy adviser ISS recommended voting against say on pay at a 14 percent rate. It’s worth noting the lack of blind adherence to ISS recommendations — investors voted “no” at a rate of 3 percent.
Majority Voting for Directors
Governance Metrics International and the IRRC Institute recently came out with a report that details what happens when directors don’t get majority support in director elections. Surprise, but in this era of majority voting, most of them don’t resign. This is largely because many of the directors who don’t receive majority support sit on boards at small and mid-cap companies that have not adopted the majority-voting standard common at larger S&P 500 companies.
Summary statistics below:
- 18 proposals asked to establish a majority-voting standard (average support for these proposals was 57 percent)
- 45 directors have failed to earn majority support thus far in 2012 (just four of these directors have stepped down in response)
After the courts struck down the SEC’s plans for proxy access by which shareowners would have had a mechanism for placing their own nominees for board seats on proxy ballots, company-by-company “private ordering” has become the watchword for 2012. This is the first year in which shareowners, and companies themselves (we’re talking about you, Hewlett-Packard), can offer amendments to a company’s bylaws to allow shareowners access to the proxy. Most of the proposals submitted were eventually deemed excludable by the SEC (meaning companies could exclude them from the proxy). This was the first year of private ordering in the U.S., so expect more proposals to get through the SEC minefield next year.
- 22 proxy-access proposal submissions
- Only seven have made it to a vote
- Only two passed (Chesapeake and Nabors, both in June)
We have already detailed that the return on political spending may not be that great. It seems that investors may have gotten the message, as the number of investor-sponsored proposals asking for more transparency around lobbying and political spending is up substantially from last year. We will have to wait and see if this momentum carries over to next year, when there are no elections in the U.S. on which to spend corporate money.
Summary statistics below:
- 71 such proposals (versus 53 in 2011)
- None have passed
- Average support just above 20 percent
- 19 proposals earned 30 percent support or higher