Era of harmony expected in upcoming proxy season
The proxy season opens with the biggest number of shareholder proposals corporations confront coming from a group of investors representing $428.1 billion in combined assets and led by a Harvard University initiative, filing 74 resolutions calling for annual elections for directors.
On other issues, Walt Disney Co. and Verizon Communications Inc. have been fighting shareholders to keep proposals out of their proxy statements, while Hewlett-Packard Co. and Chesapeake Energy Corp. are cutting a new path to quell shareholder conflict over proxy access.
Despite the upcoming clashes, corporate governance has reached a new harmony. Corporations this year face a likelihood of far fewer shareholder proposals and higher shareholder support for directors and executive compensation, according to experts.
Corporations increasingly have reached out to shareholders to initiate discussions on executive pay and other key issues to reach agreement on reforms.
There “is more engagement between institutional investors and companies over pay issues, bringing directors into that discussion — members of the executive compensation committee, in a very significant way,” said Patrick McGurn, special counsel, Institutional Shareholder Services Inc., Rockville, Md., a corporate governance and proxy-voting advisory firm. “Boards are being very responsive to shareholders concerns on say on pay,” he said of what has been one of the most contentious issues.
“Companies are much more likely today than they were a few years ago to pick up the phone and reach out to institutional investors to listen to their concerns about executive compensation,” he said.
Cornish F. Hitchcock, attorney with Hitchcock Law Firm PLLC, Washington, who is working with pension funds and other institutional investors on proposals, said, “I think companies realize they need to do more outreach ... I think there is more engagement of shareholders.”
Michael P. McCauley, senior officer, investment programs and governance of the $160.9 billion Florida State Board of Administration, Tallahassee, sees a relationship between market performance and shareholder indignation.
“There is a high correlation of what the market does and I think the investor appetite for evaluating pay-for-performance relationships,” Mr. McCauley said. “If you have a really strong market, I think that would damp down the antagonism toward some of these say-on-pay (ratifications). But if it were to stay flat or decline, a lot more attention would be paid to it.”
So far for this year, shareholders have filed 450 proposals, well off the pace of last year, according to ISS data.
While shareholder proposals could grow substantially, “it looks unlikely” to surpass last year's level, Mr. McGurn said. Overall, there are “not a lot of new issues coming up in 2013,” he said.