Proxy Access Splits Institutions, Retail Investors

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By Yin Wilczek

Aug. 27 — While companies are now engaging with their institutional investors over proxy access, retail investors may not be as enamored of the mechanism.

Of the more than 80 proxy access proposals that came to a vote between Jan. 1 and June 30, 85 percent of the votes cast by retail investors were against such proposals, according to an Aug. 27 report by Broadridge Financial Solutions Inc. and PricewaterhouseCoopers's Center for Board Governance.

On the other hand, institutions voted 61 percent of their shares in favor of the proposals.

The retail investor votes generally were in line with management's recommendations, the report stated. It also said it found no link between proxy access proposals and specific shareholder dissatisfaction with the directors at the targeted companies.

Shareholder Rights Initiative

“Shareholder rights appeared to be a driving force behind proxy access proposals this season—rather than dissatisfaction with specific company directors,” Chuck Callan, Broadridge senior vice president for regulatory affairs, said in a release. “Shareholders were strongly supportive of most directors at companies where proxy access proposals were passed.”

The report, “2015 Proxy Season Wrap-up,” was based on Broadridge and PwC's analysis of data from 4,280 companies that held their annual meetings between Jan. 1 and June 30.

Proxy access gained a strong foothold this season, fueled mainly by a push by New York City Comptroller Scott Stringer through shareholder resolutions targeting 75 companies.

So far, more than 50 companies, including Microsoft, have adopted or plan to adopt the mechanism, which allows eligible shareholders to include their director nominees on the company's ballot.

Passive Voters

However, shareholder proponents told Bloomberg BNA that there are challenges to reaching out to retail shareholders. Among other problems, only a low percentage of retail investors actually vote their shares. Those that do vote typically vote in line with management recommendations, the proponents said.

Shareholder activist James McRitchie told BBNA that retail investors also are at the mercy of how the shareholder proposal is presented to them. “Companies and their agents sometimes use deceptive practices to discourage retail shareholders from voting against the board’s recommendations,” he said in an Aug. 27 e-mail. “Many retail shareholders just look at the ballot and vote based on titles.”

For his part, Comptroller Stringer urged retail investors to become more deeply involved in the process. “Once they are fully engaged we believe that they will see past alarmist opposition statements from management, and embrace the clear benefits of proxy access for long-term shareowner value,” Stringer said in an Aug. 27 e-mail to BBNA.

Meanwhile, a recent research paper by Securities and Exchange Commission staffers found that the private ordering process is not an efficient means to deliver proxy access to the companies that may need it the most.

According to the paper, shareholder proponents are not targeting companies that would find proxy access valuable. The paper also said that management is more likely to resist proxy access at the companies that stand to benefit more from the approach.

Director Elections

In other highlights, the Broadridge and PwC report found that almost 23,000 directors stood for election during the 2015 season. Eighty-two percent of the directors received shareholder support of at least 90 percent, while 98 percent of the directors received majority support.

However, 1,184 directors did not receive at least 70 percent of shareholder support, while 345 directors did not receive majority support.

The report also found that 46 percent of companies that failed to attain majority support for say-on-pay last proxy season had at least one director fail to obtain at least 70 percent shareholder support this season.

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Seth Stern at sstern@bna.com

The report and related release are available at http://www.broadridge.com/news-events/press-releases/2015-Proxy-Season-Results-Show-that-Retail-Investors-Voted-Against-Proxy-Access-Proposals-According-to-New-Report-from-Broadridge-and-PwC-US.html?show=%20Press%20Release.

The SEC staff paper is available at http://www.sec.gov/dera/staff-papers/working-papers/24jul15_bhandari_public-vs-private.html.