NEW YORK, Sept. 18, 2014 /PRNewswire/
-- Research released today by The Conference Board in
collaboration with FactSet reconstructs how shareholder activism
and voting at annual general meetings (AGMs) of U.S. public
companies have evolved in the last five years. The report,
Proxy Voting Analytics (2010-2014), examines
data from more than 2,500 AGMs held at Russell 3000 companies between January 1 and June 30. It shows a
fundamental shift in the types of resolutions submitted to a vote
by shareholders, the sophistication developed by activist investors
in the use of technology and social media to agitate for corporate
change outside of the AGM, and the increased propensity of senior
management to implement precatory shareholder proposals on
corporate governance that have received the support of a majority
of voting shares.
The introduction of say on pay was one of the most significant
developments in corporate/investor relations following the
financial crisis of 2008 and led to a sensible decline in the
volume of shareholder proposals on executive compensation.
Nonetheless, targeted pay issues can still find their way onto
corporate voting ballots at annual meetings, and in some cases they
receive wide support. For example, the report shows that, among
Russell 3000 companies that held
meetings during the first half of 2014, five investor-sponsored
proposals restricting golden parachutes received majority support,
the highest number ever recorded for this topic.
"The introduction of say on pay was a game changer in the design
of compensation policies, as many large investors are now heard by
management as part of the process and ahead of a shareholder
meeting," says Matteo Tonello, Vice
President at The Conference Board and coauthor of the report with
researcher Melissa Aguilar.
"However, some institutions, especially labor-affiliated funds,
continue to file resolutions on executive compensation, which they
now view as a surgical tool for the removal of controversial pay
practices. The five proposals approved on the restriction of golden
parachutes are an example of this development."
Political spending and lobbying activities, a topic virtually
absent from voting ballots until a few years ago, became the most
frequently submitted shareholder proposal type of 2014, with a wide
range of sponsors (investment advisers, individuals, religious
group, in addition to a handful of labor unions) requesting more
disclosure or, in some cases, restrictive policies. There were 86
such proposals voted during the first half of the year, five of
which received more than 40 percent support.
"Since Citizens United, this type of shareholder request
has steadily risen to the top of the social and environmental
policy category, and is far more frequent than proposals on human
rights or environmental issues," says John
Laide, Vice President at FactSet Research Systems. "Interest
in the issue is not expected to subside, and proposals on political
issues receive the highest average support among social and
environmental topics, although they're still far below the average
support for governance topics."
The Conference Board and FactSet also reported the 2014 rate of
withdrawals of shareholder proposals (11.6 percent of the total
submissions in the Russell 3000),
which doubled from a few years ago as companies chose to preempt a
vote on certain investor requests by voluntarily implementing their
own reforms. It was not all a product of engagement, however, and
guidelines on board responsiveness from proxy advisory firm ISS
also drove the surge of management proposals on issues previously
raised by activists.
Other findings highlighted in Proxy Voting Analytics
(2010-2014) include:
- Shareholder proposal volume was slightly lower this year, with
a sharper decline among larger companies as investors focus on new
topics and broaden their targets.
- Excess cash on U.S. companies' balance sheets fueled the growth
of the activist hedge fund industry, and the number of resolutions
sponsored by hedge funds surpassed the record levels of 2008.
- Activity in the area of executive compensation by investment
funds affiliated with labor unions continued to soften as those
investors showed new interests, especially in social and
environmental policy issues.
- Proposals on corporate governance, once a stronghold for
pension funds, were sharply reduced as more companies introduced
engagement policies with large investors.
- Shareholder resolutions on social and environmental policy rose
to unprecedented levels, while some institutional investors dropped
governance issues that were a staple of their past activity but
never garnered widespread support.
- The rate of withdrawals of shareholder proposals doubled from a
few years ago as companies preempt some issues by voluntarily
implementing their own reforms.
- As large groups of institutional investors reduced their 14a-8
filings or shifted their attention to new and less popular topics,
the percentage of voted proposals winning the support of a majority
of shareholders reached a new low.
- Proposals on board declassification and majority voting have
become a sure bet for labor unions and public pension funds, as
they are widely recognized as a baseline in corporate
governance.
- A surge in requests from corporate gadflies made the separation
of CEO and chairman roles the top shareholder proposal topic by
volume, but the institutional investment community remains
skeptical of a one-size-fits-all approach to board leadership.
- Support for shareholder proposals on proxy access rights
reached a tipping point in 2014, with five proposals approved and
four others receiving the support of more than 40 percent of votes
cast, and a handful of companies submitted board-sponsored
proposals.
- Say-on-pay analysis confirms a significant turnover in failed
votes, with several companies losing the confidence of their
shareholders this year after winning the vote by a wide margin in
2013.
- Although activism campaign announcements in the Russell 3000 were up in 2014, the number of
campaigns related to a shareholder meeting declined, as some hedge
funds choose to agitate for change without even filing a
shareholder proposal.
- Observations made in 2013 that hedge funds were starting to set
their sight on larger companies appear disputed by numbers for
2014, when a sharp decline in activism campaign volume was recorded
among S&P 500 companies.
- Proxy contests were the only type of activist campaign related
to a shareholder vote to increase among Russell 3000 companies in 2014, with a
concentration in the retail trade and finance industries, and
dissidents reported their highest success rates in years.
- Engagement between corporations and investors has not curbed
the most hostile forms of activism, as the volume of proposals to
elect a dissident's nominee remain fairly high.
Download the Executive Summary at:
www.conference-board.org/proxy2014. The complete report, Proxy
Voting Analytics (2010-2014), will be released in in the fall.
To receive a complimentary copy when it becomes available, please
register for free at www.conference-board.org/directornotes.
About The Conference Board
The Conference Board is a global, independent business
membership and research association working in the public interest.
Our mission is unique: To provide the world's leading organizations
with the practical knowledge they need to improve their performance
and better serve society. The Conference Board is a non-advocacy,
not-for-profit entity holding 501(c)(3) tax-exempt status in the
United States. For more information, please visit
www.conference-board.org. To enable peer comparisons among its
member companies, The Conference Board offers a portfolio of
benchmarking data and analysis on corporate governance, proxy
voting, sustainability and citizenship. It can be accessed at
https://www.conference-board.org/data/corporatebenchmarking/.
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analytics, helps the world's best investment professionals
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SOURCE The Conference Board