Proxy access takes center stage

Proxy access is well established as the governance topic of this year’s US proxy season. More than 100 companies have now either received a proxy access shareholder proposal or voluntarily adopted the practice.

For those of you outside the US wondering what all the fuss is about, proxy access allows shareholders that meet certain criteria to nominate their own directors and include the slate inside a company’s own annual meeting documents.

The SEC tried to introduce market-wide proxy access in 2011 but its rule was struck down on appeal. Since then, shareholders have been able to pursue proxy access on a company-by-company basis by filing a non-binding resolution to be voted on at the firm’s AGM.

Between 2011 and late 2014, each year saw a handful of proxy access resolutions. But the issue took center stage after the New York City Comptroller, which represents five New York pension funds, filed 75 proposals as part of its Boardroom Accountability Project.

Another important factor: one of the key ways for companies to ignore proxy access filings used to be by requesting a no-action letter from the SEC ‒ but the regulator has stopped issuing such letters pending a review of their use. As a result, it’s much harder this year for companies to avoid a vote on the issue.

Major institutional investors and proxy advisers have also added to the momentum, by voicing their support for proxy access in principle. But they don’t all agree on the details. At the moment, the most popular version follows the SEC’s original rule – the so-called 3/3/25 approach, where a shareholder or group of shareholders that has held 3 percent of the shares for three years can nominate up to 25 percent of the board. 

The lack of a solid consensus offers companies wiggle room in their negotiations with shareholders over the issue. But they will need very good reasons to significantly alter the 3/3/25 criteria. To see where shareholder support broadly lies, companies will need to review how the voting goes for different types of proposals over the next couple of months.

For some, the battle for proxy access is already over. Over the next few years, they believe, it will be rolled out across the majority of large US companies. Given the broad support proxy access in some form already holds within the investment community, this seems likely. Companies not targeted this year should certainly start talking to their investors about the issue, if they haven’t already.

The other big question is how proxy access will be used. One worry is that it could be hijacked by shareholder activists, though many activists would struggle to meet a three-year holding period. In addition, it does not necessarily benefit activists to include their director nominations within the company’s proxy materials. While that saves money, it also dilutes the activist’s message and campaign. (A useful reference point is Canada: it has proxy access and high levels of shareholder activism, but its proxy access rule is barely ever used.)

What’s most likely, as one seasoned market watcher explained to me recently, is that proxy access becomes another piece of leverage for major shareholders that want to shake up corporate boardrooms. For all the talk about proxy access this year, its impact looks set to represent just a slight shift in the power between companies and their owners.

Dieser Artikel ist erschienen im IR Magazine

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