Proxy access proposals coming back strong

Proposals calling for corporations to include in their materials shareholder nominations for directors — the first time such resolutions will appear in proxy statements at any company since 2007 — could be leading indicators for this proxy season.

“They are clearly the biggest new issue,” said Patrick McGurn, vice president and special counsel, Institutional Shareholder Services Inc., Rockville, Md. “There is no doubt about that. ... It's not 100% new, but as close to it as you are going to get.”

LongView Funds, a unit of Amalgamated Bank, already won a victory at Hewlett-Packard Co. Long-View withdrew its proxy access proposal after the company agreed to include in its 2013 proxy statement a board-approved proposal asking shareholders to vote on proxy access, according to Long-View and HP statements.

The company's proposal will be binding; LongView's was non-binding.

KSW Inc. agreed to provide proxy access following the filing of a shareholder proposal by Daniel Rudewicz and his Furlong Fund LLC, Washington, according to a letter KSW filed with the Securities and Exchange Commission. KSW will allow shareholders that have held at least 5% of its stock for a year to nominate a director. The proposal called for holding 2% for one year. As a result, KSW will exclude the proposal, according to its letter.

In 2007, the last time the SEC allowed proxy access proposals, shareholders voted 43% in favor of access at HP. Only two other such proposals went to a vote that year.

Unlike at HP, a proposal at Nabors Industries Ltd. is set to come to a shareholder vote at the company's annual meeting in June. The $113.7 billion New York City Retirement Systems — employees, fire, police, teachers and board of education pension funds — were the lead filer on the proposal. They were joined as co-filers by the $10.6 billion Illinois State Board of Investment, $144.8 billion California State Teachers' Retirement System, $71.8 billion North Carolina Retirement Systems and $23.2 billion Connecticut Retirement Plans & Trust Funds.

It is the only such proposal filed by a pension fund. The proposal is non-binding. Nabors hasn't yet filed its proxy statement.

In all, proposals were filed at 18 companies as of Feb. 1, calling for shareholders to have access to corporate proxy materials to nominate generally a minority of directors to boards, according to ISS. Many of them were filed by individuals.

Goldman Sachs Group Inc. and Bank of America Corp. are among the other companies targeted with the proposals.

Norges Bank Investment Management filed six access proposals, the largest number of any proponent. Companies at which it filed include Wells Fargo & Co., Charles Schwab Corp. and CME Group Inc.

Last fall, the SEC began allowing shareholder access proposals after a four-year hiatus.

Besides proxy access, HP and Nabors could be bellwethers this proxy season on executive compensation in their say-on-pay voting.

Both were among only 41 companies where shareholders in say-on-pay voting last year voted in the majority to reject executive pay. That was the first year say-on-pay votes were required at every U.S. publicly traded company under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In addition, the presidential campaign could heat up the proxy season. A change in the administration could mean a rollback in say-on-pay voting and other corporate governance provisions in the Dodd-Frank act. Republican candidates generally have said they would, if elected, seek to repeal the act, Mr. McGurn said.

Also, a change in the administration would mean a new SEC chairman and a shift to a 3-2 Republican majority from a Democratic majority on the commission.

Such a change might delay any effort by the SEC to repropose a proxy access provision, Mr. McGurn said.

The Illinois State Board also teamed up with Lucian Bebchuk, professor of law, economics and finance, and director of the program on corporate governance at Harvard Law School, Cambridge Mass., to file proposals at 22 companies on declassifying boards. BlackRock Inc. and Principal Financial Group Inc. are among the targets.

Mr. Bebchuk “solicited us and it's good for us to have someone to do the work for us” on filing proposals, said William R. Atwood, executive director of the Chicago-based board.

“The issue of board declassification” to require annual election of all directors “is a low-hanging fruit,” Mr. Atwood said. “It is relatively undisputed. Once it's put on a proxy statement, it generally passes.”

On the current condition of corporate governance, Mr. Atwood said, “My sense is it generally has ... improved. Corporations are more cognizant of governance issues than they were 10 years ago. Just the nature of the conversation (between shareholders and corporate officials) has improved.”

On the outlook for the voting on proxy access proposals, Mr. McGurn said, “The proposals are so different in this category ... we are likely to see a fairly inconsistent amount of support from company to company, depending on the threshold” for the eligibility of shareholders to nominate directors.

Under the agreement with the LongView funds, HP agreed that “the nominating stockholder or group of stockholders must have beneficially owned 3% or more of HP's outstanding common stock continuously for at least three years before a nomination is submitted,” according to an HP statement. In addition, HP will require that the number of stockholder nominees not exceed 20% of the number of directors on the board.

By contrast, all the Norges proposals call for only a 1% ownership for one year, while placing a 25% cap on board seats subject to shareholder nominations.

In addition, some of the proxy access proposals are binding. All of the Norges proposals are binding, as well as proposals filed by individual investors at two other companies.

Because of the variances, “it's harder to generalize (on predicting voting) on this issue than any other proposal on the corporate governance scene,” Mr. McGurn said.

But he added, “The higher the hurdle for access nominators to cross, the higher the support level may end up being. Setting high thresholds may address some of the arguments companies make against the resolutions” and win more shareholder support. n