Views on improving the integrity of global capital markets
01 April 2015

CorpGov Roundup: Private Ordering and Proxy Access, Dual-Class Shares, “Two Strikes” Rule

I’ve been writing and researching the issue of proxy access in the US a fair amount lately. In pulling together this month’s CorpGov Roundup, I see that proxy issues have also been making headlines in Australia and Canada. But it’s not the only issue trending. In the European Union there is concern about dual-class voting rights, and in Asia it’s investor stewardship.


One of the most interesting highlights from a report on trends evident from the most recent proxy season in Australia, published by Computershare, is a review of its “two strikes” rule concerning executive compensation. Under the two strikes rule, if a company receives a vote of 25% or higher against its executive pay plan for two years in a row the company is required to hold a “spill” vote in short order on whether to put up the directors for re-election. According to the report, 85 companies received a “first strike” (negative votes on pay of 25% or more), up about 6% from the previous year. However, only 10 companies received a “second strike,” down over 50% from the previous year. It therefore appears that the rule is working as intended — with the vote of a second strike rarely used, in most cases focusing the minds of shareowners and companies to find a compromise that avoids a vote for a second strike.

The Australian Shareholders’ Association (ASA) cautions that the second strike of the two strikes rule should be used sparingly, stating in its proxy voting guidelines:

ASA supports the “two strikes” regime, but regards the decision to vote in favour of a board spill after a second strike to be a substantial step only to be taken in extreme circumstances. Calling an EGM [extraordinary general meeting] to spill an entire board can be a highly disruptive event for a company. ASA acknowledges that the threat of this happening has led to substantial pay reform in Australia.


The Shareholder Association for Research and Education (SHARE) in Canada recently published its 2015 Model Proxy Voting Guidelines. They offer a good primer on almost any corporate governance issue an investor could come across, with SHARE addressing issues such as dual-class shares (they are generally against them except in extraordinary circumstances); proxy access (they support it); and majority voting for directors — where they support proposals to require boards to accept the resignations of directors who do not receive a majority of affirmative votes of shareholders.

European Union

There is concern in some governance circles that dual-class voting rights are making their way into a shareholder rights directive currently under consideration by the European Parliament, which is charged with updating the European Union’s corporate governance practices. The proposed amendments would introduce long-term shareholder incentives granting extra voting rights to those who hold their shares for the long term.

Opponents of such rules claim that such rights disenfranchise minority shareholders and give undue influence to a group that may decide to grant themselves special rights, rewards, or privileges instead of looking out for the best interest of long-term shareowners as is the proposed intention of the rule.

A vote on the matter is scheduled to take place in early May.

CFA Institute believes that company rules should ensure that each share has one vote. A structure that permits one group of shareowners disproportionate votes per share creates the potential for a minority shareowner to override the wishes of the majority of owners for personal interest. Where such dual structures are legal, companies should disclose such arrangements and the situations, the manner, and the extent to which those arrangements may affect other shareowners.

Hong Kong

A consultation paper on principles of responsible ownership (a stewardship code) was recently published by the Securities and Futures Commission of Hong Kong.

The principles ask an investor to have a policy on this important issue, implement the policy, and tell stakeholders what its policy is, and how it was implemented. The principles call on investors to:

  • establish and report to their stakeholders their policies for discharging their ownership responsibilities
  • monitor and engage with their investee companies
  • establish clear policies on when to escalate their engagement activities
  • have clear policies on voting
  • be willing to act collectively with other investors when appropriate
  • report to their stakeholders on how they have discharged their ownership responsibilities
  • when investing on behalf of clients, have policies on managing conflicts of interests

Comments are due by 2 June.


Stewardship Asia was launched in March by Singapore sovereign wealth fund Temasek. The group aims to improve investor stewardship and corporate governance throughout Asia.

If you are in or around Singapore in late June, you might want to check out the Stewardship Asia Roundtable on 24 June. The governance get-together is planned to bring together the region’s influential thinkers and leaders for an exchange of ideas on advocating sound stewardship and governance.

United States

Proxy access is destined to be the corporate governance issue of the year in the United States. The list of companies that have adopted proxy access themselves through “private ordering” continues to grow, now including Abercrombie & Fitch, Big Lots, McKesson, Staples, Whiting Petroleum, FirstMerit, and Prudential Financial.

The most interesting development thus far may be companies that have decided to put forth “dueling proposals” at their annual general meetings. These companies — so far, Chipotle, Cloud Peak Energy, Exelon, and AES Corporation — have decided to put forth company proposals requiring a 5% ownership threshold held for three years, up against shareholder proposals advocating a 3% ownership threshold over 3 years. It will be quite interesting to see how investors vote in such instances. It is quite rare for such a genuine contest of ideas to make its way to the corporate proxy ballot.

Securities and Exchange Commission Chair Mary Jo White recently stated that the SEC is monitoring the recent developments on the issue of proxy access, but has no immediate plans to act on the issue.

Investors such as the New York City Pension Fund, Norges Bank Investment Management, BlackRock, TIAA-CREF, Vanguard, CalSTRS, CalPERS, and the Florida State Board of Administration coming out for the proposal support proxy access, though some differ on what ownership threshold they would support.

If you liked this post, consider subscribing to Market Integrity Insights.

Image credit: istockphoto/YinYang

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.

Leave a Reply

Your email address will not be published.

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.