Investors Fought for Access to Company Boards: Will They Use It?

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By Michael Greene

Just over half of S&P 500 companies, including Apple Inc., Microsoft Corp. and Inc., now have proxy access bylaws, but that doesn’t mean shareholders are eager to use the mechanism to nominate corporate directors.

Proxy access allows significant, long-term shareholders to place their board nominees on the proxy card for the company’s annual meeting, which is simpler and less expensive than mailing out a dueling ballot.

While investor advocates have long lobbied Congress and the Securities and Exchange Commission for the process, it has been used only once since its wider adoption in the U.S. starting in 2015. That effort, at National Fuel Gas Co., was abandoned early.“We are hopeful this will be a useful means for long-term holders to, on occasion, challenge incumbent directors, but we anticipate the tool will be used rarely,” Ken Bertsch, executive director at the Council of Institutional Investors, told Bloomberg BNA.Nearly all proxy access provisions adopted by U.S. public companies allow shareholders who have held at least 3 percent of their shares for three years or longer to use the mechanism, according to a recent CII report. The study also found 87 percent of access bylaws allow no more than 20 shareholders to aggregate their holdings to use the process.

BlackRock, Vanguard and State Street are some of the investors that can meet the 3 percent criteria, data from Bloomberg Intelligence shows. But such large shareholders “may prefer to negotiate quietly behind the scenes,” Bloomberg Intelligence analysts Gregory Elders and Eric Balchunas said in a Feb. 10 report.

Push for Representation

It isn’t clear what triggers a shareholder’s desire to have representation on a company’s board, Steven Stokdyk, a Los Angeles-based partner at Latham & Watkins LLP, and Joel Trotter, a Washington-based partner and global co-chair of the firm’s public company representation practice, told Bloomberg BNA in a joint e-mail.

If they want representation, longstanding shareholders with more than 3 percent of the company’s shares may have a good enough relationship with the company to ask for that representation, unless they’re concerned that if the request fails, “the act of making the initial request might forestall the opportunity to use proxy access,” they said.

The experience at National Fuel Gas (NFG) also may deter shareholders that actively engage with companies. Gamco Asset Management Inc. in November 2016 withdrew its access nominee—former Goldman Sachs partner Lance Bakrow—to the Williamsville, N.Y.-based natural gas company’s nine-member board after Gamco’s eligibility to use the process was challenged. Gamco previously urged the company to split up, and NFG’s bylaw bars shareholders that have shown an intent to “influence control” of the company from using proxy access.

NFG’s provision is common among companies that allow proxy access.

“This scenario underscores the importance of the thoughtful consideration required for adoption and application of any proxy access regime, particularly while this area of corporate governance continues to evolve,” Stokdyk and Trotter said.

Overly Restrictive?

Meanwhile, other bylaw provisions may further limit usage of the process.

“By design, U.S.-style proxy access is difficult to use,” Bertsch said, citing the 3 percent, three-year eligibility requirements. He also cited a provision adopted by some companies that requires shareholders submitting access nominees to file with the SEC anytime they communicate with other shareholders. Provisions like these can be “debilitating,” Bertsch said.

It’s simply too soon to say whether shareholders can effectively use the process, said Anne Simpson, investment director of sustainability at the $300-billion California Public Employees’ Retirement System, the largest public pension fund in the U.S.

“It’s encouraging that proxy access has gone mainstream—that focuses the engagement conversation,” Simpson told Bloomberg BNA. “Now that major long-term investors have this, we expect boards to respond,” she said. “However, engagement is first, and using proxy access will be a last resort.”

To contact the reporter on this story: Michael Greene in Washington at

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

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