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Governance

Board elections, proxy access, pay still on list

Patrick McGurn expects fewer proxy access shareholder proposals in 2018.

While climate change and board diversity are expected to be the major themes in the 2018 proxy season, sources said proxy access, board director elections, gender pay equity and executive compensation still will play prominent roles.

Patrick McGurn, special counsel and head of strategic research and analysis at Institutional Shareholder Services Inc., Rockville, Md., said that he expects proxy access to remain a big issue in 2018, although the number of shareholder proposals submitted could fall short of last year's 119. This year could also mark the first time since 2014 that the number of proxy-access proposals does not reach triple digits, Mr. McGurn said. The decline is expected given many U.S. large-cap companies have already adopted proxy access. However, there are still plenty of targets among middle-market and small-cap companies, Mr. McGurn said.

Mr. McGurn also predicted that investors will continue to take boards to task where there are risk oversight failures. Wells Fargo & Co. fit that profile in 2017.

A "dark horse" in 2017, gender pay equity proposals, could get a boost in 2018 with the attention being paid to sexual harassment and gender workplace issues, Mr. McGurn added. In 2017, more than 20 U.S. companies received proposals calling for a gender-pay assessment, 14 of which were actually voted on. Oracle Corp. shareholders showed the highest support for this proposal in 2017 at 38.7%.

On executive compensation, sources noted the Securities and Exchange Commission's pay ratio disclosure rule, which requires the disclosure of a company's CEO-to-median worker pay ratio, takes effect for most companies in the 2018 proxy season. However, Kern McPherson, senior director, North American research, at Glass, Lewis & Co. in San Francisco, said that the proxy-voting advisory firm is skeptical about how useful this disclosure will be. Company workforce differences, such as geography, are going to make it hard to compare companies, he said.

ISS' Mr. McGurn added that investors will be looking for more than one year of data. If the rule is repealed as part of the Financial CHOICE Act, one year's data is all investors might get. The Financial CHOICE Act was passed by the House in June and included tighter restrictions on shareholder processes for submitting corporate proposals and voting for corporate board directors. It remains to be seen whether the bill gains traction in the Senate.

Kevin E. McManus, vice president and director of proxy services at Egan-Jones Proxy Services, added in an email that he expects pharmaceutical companies' pay practices to come up this year over concerns about how these practices provide incentive for executives to raise drug prices.