Bar Raised for Board Responsiveness to Shareholder Dissent

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By Andrea Vittorio

Corporate boards face higher expectations for responding to shareholder dissent on issues like executive pay under recent updates from two proxy firms that give voting advice to investors.

Directors ought to pay attention when 20 percent or more of their investors vote contrary to the company’s wishes on pay packages, board elections, and other matters, according to proxy adviser Glass, Lewis & Co.’s new guidelines for the U.S. The previous threshold of 25 percent was in place for several years.

“Anytime you lower that number, you’re putting more pressure on boards to be more responsive,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

U.S.-listed companies are also being asked by proxy advisory firm Institutional Shareholder Services Inc. to disclose more details on how boards react to relatively low levels of shareholder support for corporate executives’ compensation, which directors set. ISS wants specifics such as the timing and frequency of discussions with investors, whether independent directors participated, and what actions were taken based on investor feedback.

Boards that fail to show they’re addressing shareholder concerns could end up with a recommendation from ISS or Glass Lewis to vote against them at their next annual meeting. “Voters don’t have to follow ISS or Glass Lewis’s recommendations, which is why engagement is so important,” Elson told Bloomberg Law.

He said companies that know their investors could persuade them to vote in line with management instead. “Unless you know the voter, you can’t make that argument.”

Jump in Engagement

The proxy advisers’ updates reflect a trend toward more interaction between shareholders and the boards that represent them.

For the first time since 2014, half of directors say they’ve met with institutional investors in the past year, according to survey results released Nov. 30 by the National Association of Corporate Directors. Executive compensation is the most commonly discussed topic.

“Given the huge jump in engagement between companies and shareholders, companies have a much better idea of shareholder expectations,” said Bob McCormick, a partner at CamberView Partners LLC, which advises public companies on corporate governance issues including shareholder relations and activism.

“For their part, shareholders, who have increased resources for engagement, are better equipped to engage,” McCormick, who previously developed Glass Lewis’s proxy voting guidelines as its chief policy officer, told Bloomberg Law. “So it’s kind of a two-way street.”

About three-quarters of the nation’s 100 largest companies by revenue at least mentioned shareholder engagement in the proxy statements sent to investors before their latest annual meetings, but slightly less than half disclosed details, according to board data provider Equilar Inc. Oracle Corp., which hasn’t won a say-on-pay vote since 2011, is among only a few companies that have reported director involvement.

“In the past couple of years, we have seen more companies involved in a dialogue with investors and indicating that dialogue in their proxy material,” said Bruce Goldfarb, president and chief executive officer of proxy solicitor Okapi Partners LLC, which gives companies insight into investors’ voting decisions. “I think it will be an evolving process in terms of proxy disclosure, but that evolution will move towards more disclosure about investor outreach.”

To contact the reporter on this story: Andrea Vittorio in Washington at

To contact the editor responsible for this story: Yin Wilczek at

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