OXY Occidental Petroleum Corporation

By Joann S. Lublin 

American businesses are increasingly bowing to investors' demands for greater boardroom clout, with dozens of companies revising their bylaws in recent weeks ahead of this year's annual meetings.

Proxy access, embraced by 117 U.S. companies during 2015, gives shareholders more power to oust directors and influence corporate strategy by letting them list competing board candidates on ballots for annual meetings. About 21% of S&P 500 companies have adopted proxy access, up from about 1% in 2014, according to Institutional Shareholder Services, a major proxy-advisory firm.

Big businesses that handed investors the keys to their boardrooms last year include General Electric Co., AT&T Inc., Apple Inc., Citigroup Inc., Occidental Petroleum Corp. and McDonald's Corp. These companies typically changed corporate bylaws so owners with at least 3% of their shares for at least three years can propose a significant portion of board members.

"The accelerated acceptance of proxy access is unprecedented," said Avrohom J. Kess, a partner at Simpson Thacher & Bartlett LLP. "We're in a new world." The management lawyer advises boards about governance.

"We could approach half of the S&P 500 companies within two years" adopting proxy access this year, said New York City Comptroller Scott M. Stringer, who oversees $162 billion in pension funds. He is spearheading a campaign that initially challenged 74 more companies, including 3M Co., NVR Inc. and Home Depot Inc., to adopt or improve proxy access this year.

Mr. Stringer's new drive follows his similar 2015 initiative, supported by an influential bloc of public pension funds in various locales. Forty-three of their 66 shareholder resolutions for proxy access won majority support at annual meetings last year.

TIAA-CREF, a big asset manager, separately mounted a letter-writing campaign to its top 100 U.S. holdings last year and urged those companies to improve the ability of shareholders to nominate directors. Thirty-nine firms made the move or committed to proxy access by early 2016. "We are continuing to have conversations" with the rest, said Bess Joffe, head of corporate governance at TIAA-CREF.

The rapid spread of proxy access also has been spurred by companies' expanded outreach to major investors and directors' desire to avoid the ire of proxy advisers that often oppose their re-election when management ignores a measure garnering majority support.

Dozens of companies made the change in recent weeks amid looming deadlines for investors to submit 2016 annual meeting proposals. At least 10 proxy access bylaws arrived every week during much of December, said Patrick McGurn, special counsel for ISS. "Why catch the heat if you're going to adopt anyway?"

3M beat the New York City pension funds to the punch. The industrial conglomerate disclosed its directors' endorsement of proxy access, effective immediately, in a Nov. 10 regulatory filing. The same day, the city's pension funds sent 3M a similar proxy access measure for 2016.

"We did not have any advance notice that any shareholder was considering a shareholder proposal on the topic," and directors had considered proxy access for over a year, a 3M spokeswoman said.

Fourteen of the other businesses that received Mr. Stringer's proposal for 2016 also have already endorsed proxy access, a Stringer spokesman said. Mr. Stringer dropped another two companies for technical reasons.

But some, such as NVR, oppose New York City's efforts. The home builder wants securities regulators to block the city's binding resolution from coming to a vote this year because the company adopted a limited form of proxy access in November. NVR requires investors to own at least a 5% stake before they can nominate directors. It declined to comment, as did Home Depot, which lacks proxy access.

Investors have yet to use their improved entry into boardrooms. But "in the next two or three years, we might start to see one or two instances, " said Cam Hoang, a partner at Dorsey & Whitney LLP and governance specialist. She expects coalitions of institutional shareholders will nominate directors at troubled companies that should fire their chief executive, for instance.

"It is the nuclear weapon that is a measure of last resort," said TIAA-CREF's Ms. Joffe.

Write to Joann S. Lublin at joann.lublin@wsj.com

(END) Dow Jones Newswires

January 10, 2016 19:14 ET (00:14 GMT)

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