Investors Not Confused by Conflicting Resolutions

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By Yin Wilczek

July 16 — This proxy season shows that investors were not confused by having to vote on competing management and shareholder resolutions, the SEC's investor committee was told July 16.

Voting results at companies that presented dueling management and shareholder resolutions on proxy access “demonstrated that investors were not confused in differentiating between the two proposals, nor were boards faced with inconsistent” and ambiguous voting results, Assistant New York City Comptroller Michael Garland told the Securities and Exchange Commission's Investor Advisory Committee.

“In no case did both receive majority support,” Garland said. “In all but one case, one proposal or the other got a clear majority vote,” with margins in excess of 5 percent.

Patrick McGurn, special counsel for Institutional Shareholder Services Inc. suggested that the competing resolutions in fact benefited investors and companies. “I think it enriched the debate and the engagement that took place that there were alternative ideas on access appearing on the ballot.”

Impact to SEC Rule 

This conclusion likely will be important in the SEC staff's ongoing review of 1934 Securities Exchange Act Rule 14a-8(i)(9), which allows companies to omit from their proxy materials shareholder resolutions that directly conflict with a management proposal.

SEC Chairman Mary Jo White directed the staff to review the rule after investors raised concerns that companies were using it to avoid shareholder access proposals with thresholds they considered too lax.

No-action relief under the rule has been suspended since January pending review, leading shareholders at many companies to face conflicting management and shareholder resolutions on a variety of topics.

At the same IAC meeting, an SEC official said the staff's review may be completed by October.

McGurn noted that the lack of investor confusion was clear even with regard to dueling proposals for special meetings.

While competing access resolutions received split votes, investors faced with dueling special meeting resolutions “overwhelmingly voted in favor” of the management proposal, McGurn said.

One reason for that could be that to shareholders, a corporate bylaw allowing them to call special meetings trumps a shareholder proposal, even one with more lenient standards, McGurn suggested. That proves, once again, that investors are voting on a case-by-case basis and “aren’t confused by competing issues on the ballot.”

Unqualified Success 

Garland and McGurn agreed that proxy access was the top issue this proxy season. According to their comments, there were 110 proxy access proposals filed, and 50 companies now have adopted, or agreed to adopt, the mechanism.

Garland also offered some statistics on the proposals that his office submitted to 75 companies last fall. Of the 75 resolutions:

• 63 to date have gone to a vote, while four more have votes pending. The rest of the 75 proposals either were withdrawn or became moot.

• of the 63, 41—or about two-thirds—received majority support;

• average support across all 63 was 56 percent;

• of those that failed, half received 45 percent support on average; and

• only four out of the 63 received less than 40 percent support.


Garland said the experience from the proxy season emphasizes that a universal rule is needed. Of the companies that enacted proxy access bylaws, many imposed restrictions that make it very difficult for shareholders to utilize the mechanism.

Until a universal rule is promulgated, the SEC should ensure that there is a “permanent fix” to Rule 14a-8(i)(9) so that it only can be used in very narrow circumstances, Garland said.

McGurn also offered some observations on the proxy season. He noted that one major theme was that there were no significant signature no-vote campaigns run in uncontested board elections this year. The average support for directors at Russell 3000 companies was 96.3 percent.

The “phenomenon” that ISS now is tracking is directors at companies who have received a negative vote for three, four or five years, McGurn said. In those cases, the company in question often issued very little disclosure as to how its board considered the no-votes.

“So far this season, we’ve only seen a handful of cases where directors left the board after receiving sub-majority support,” McGurn said. “So there'll definitely be a follow-up by some investors on that front.”

To contact the reporter on this story: Yin Wilczek in Washington at

To contact the editor responsible for this story: Ryan Tuck at


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