Panelists Highlight Major Trends, Takeaways From 2014 Proxy Season

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By Kristyn Hyland

Oct. 29 — The Securities and Exchange Commission saw “12 percent fewer requests for [shareholder proposal] no-action relief” this proxy season, a sign that companies may be pursuing greater shareholder engagement, Smeeta Ramarathnam, chief of staff to SEC Commissioner Luis Aguilar, said Oct. 29.

Carol Ward, vice president and corporate secretary at Mondelez International, noted that she, with full transparency, pursues a dual course of action—negotiating with the shareholder while at the same time pursuing no-action relief from the SEC. This will make it much more likely that you'll “come out with the good outcome for your company,” she noted.

Ramarathnam and Ward spoke on a panel at the Association of Corporate Counsel's Annual Meeting in New Orleans.

Proxy Season Statistics

A total of 286 SEC staff responses were issued this proxy season in response to no-action requests, according to panelist Marc Gold, senior vice president and associate general counsel, corporate & securities, at Thomson Reuters.

Rule 14a-8(i)(1) of the 1934 Securities Exchange Act provides that a company may exclude a proposal from its proxy materials if it is not a proper subject for action by shareholders under the laws of the company's jurisdiction. Under the rule, there are 13 separate substantive grounds upon which a company may omit a shareholder proposal.

Of the 286 no-action responses this season, 60 no-action requests were withdrawn, leaving 226 in which the SEC staff either granted or denied no-action relief, said Gold. Of those 226, approximately 70 percent were granted relief. The most common bases for relief were:

• exclusion on procedural grounds (30 percent);

• vague or false and misleading (18 percent);

• deals with ordinary business operations (14 percent);

• substantially implemented (12 percent); and

• conflicts with the company's proposal (11 percent).

Governance-related shareholder proposals remained the most common shareholder proposal topic this proxy season, followed closely by proposals related to social/political issues, according to Ward.

The most common of these governance proposals related to board declassification, majority voting in director elections and the elimination of supermajority voting, said Ward. Proposals calling for the separation of the CEO/board chairman positions also received continued focus. In addition, proposals related to director tenure were on the rise.

Overall, compensation-related shareholder proposals declined, likely a result of the implementation of say-on-pay, which is now in its fourth year, Ward noted.

“Say-on-pay is about communicating effectively to your investors,” Ward said. Shareholder communication regarding your company's pay practices needs to start early, well before the proxy materials are issued, Ward noted.

Who Received Shareholder Proposals?

One emerging trend from the most recent proxy season is that “proponents are increasingly targeting mid-cap or smaller companies,” said Ward.

Although large-cap companies continue to be the focus of shareholder proposals across the board, governance-related proposals are on the rise at small-cap companies, largely because many of the practices targeted by such proposals have already been changed at the large-cap companies.

According to a June 2014 Sullivan & Cromwell client alert, “Proposals received by smaller companies in 2014 represented a higher percentage of total shareholder proposals, due largely to the lower number of proposals at large companies, as there are relatively few large companies remaining to serve as targets for destaggering, majority voting and supermajority threshold proposals.”

Proxy Materials

Regarding the proxy materials, Ward recommended including an executive summary to explain the company's pay practices. “It's been a very effective tool for us.”

According to panelist Atiba Adams, corporate secretary & chief governance counsel at Pfizer, his in-house department works very closely with Pfizer's governance committee on the proxy. In addition, their Compensation Discussion & Analysis is closely scrutinized by the compensation committee before it's finalized.

Ward noted that she has a draft CD&A to their compensation committee by December so there is plenty of time to make adjustments.

Looking Ahead

Shareholder proposals related to social and environmental issues are expected to increase in the 2015 proxy season, said Ward. Among governance-related proposals, board tenure is also expected to be a hot issue.

Ramarathnam noted that issuers should look for an announcement soon about a proxy roundtable to be held in early 2015 that will address universal ballots.

Shareholders who aren't present at a meeting typically can only vote for directors who appear on either a list of management-supported candidates or a shareholder proponent's ballot—not both. Universal ballots allow absentee shareholders to vote for candidates from both lists, regardless of how they were nominated.

SEC Chairman Mary Jo White told reporters Oct. 9 that the SEC will host a roundtable on proxy issues in 2015 spanning multiple areas, including universal ballots.

The panel was entitled “SEC Update.” The ACC's Annual Meeting runs from Oct. 28-31.

To contact the reporter on this story: Kristyn Hyland in New Orleans at

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


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