What’s Next for Proxy Access?



Proxy access has come a long way.

The mechanism allows major shareholders to nominate corporate director candidates on the company’s proxy. Many institutional shareholders regard it as a tool to hold boards accountable.

Before 2014, only six U.S. companies had adopted the process.

In fall 2014, New York City Comptroller Scott Stringer’s office gave the matter a little push through its Boardroom Accountability Project. The office submitted shareholder proposals on behalf of the city’s pension funds to 75 companies asking them to adopt proxy access.

In 2015, Stringer’s office sent access resolutions to 72 companies.

Today, about 240 U.S. companies have adopted proxy access in some form or other. According to ISS Corporate Solutions, 38 percent of the S&P 500 have a proxy access process. The companies that implemented the system are from a variety of industries. They include Intercontinental Exchange Inc. (the parent company of the New York Stock Exchange), Apple Inc., United Airlines, CarMax Inc., JPMorgan Chase & Co., and Apache Corp.

NYC Comptroller Stringer recently told Bloomberg BNA that corporate thinking on proxy access has undergone a “sea change.” He refused to show his hand for the 2017 season, only saying that his office will be “moving forward.” His ultimate goal is to help proxy access become an industry standard.

The question now is—what’s next?

A recent development involving a Securities and Exchange Commission no-action letter may provide some guidance.

During the no-action process, companies ask the SEC staff whether they may exclude a particular shareholder resolution from their proxy materials, preventing it from going before stockholders for a vote. The 1934 Securities Exchange Act provides several bases upon which the companies can ask for relief. The staff concurrence is informal—only courts such as federal district courts can decide whether companies must include the proposal in their proxies.

The SEC staff, utilizing the “substantially implemented” exemption, this year has allowed dozens of companies to omit resolutions asking them to adopt proxy access.

That’s why it came as such a surprise when, in late July, the staff didn’t agree that H&R Block could exclude a resolution from activist Jim McRitchie calling on the company to “amend” its access bylaws. McRitchie himself described the staff’s action as a “breakthrough.”

Following the H&R Block developments, if companies have what activists consider to be “proxy access lite” bylaws that are unnecessarily restrictive, they may face shareholder proposals next season asking for the clauses to be amended.

The big question, of course, is whether shareholders will utilize the new proxy access rights. Stringer told Bloomberg BNA that the mechanism is a “nuanced tool” that likely will be “rarely used.” That remains to be seen.