Investor group notches governance changes at 9 companies

A group of 14 pension funds and other institutional investors won corporate governance changes at nine companies on 14 shareholder proposals this year, according to a report released Aug. 6 by Marco Consulting Group.

The changes occurred after shareholder pressure, including proxy proposals and discussions with leaders of many of the targeted companies.

In all but one case the companies agreed to implement changes in return for the withdrawal of related 2013 shareholder proposals.

Marco coordinated the shareholder effort. Many of the funds are clients of Chicago-based Marco for proxy voting and other shareholder activism services.

Among the targeted companies:

• Abbott Laboratories agreed to implement substantially a proposal filed jointly by the City of Philadelphia Public Employees Retirement System and the Bricklayers & Trowel Trades International Pension Fund. That proposal called for banning gross-up payments to executives to cover taxes. In 2012, a proposal filed by the Philadelphia fund won 37% of shareholder support.


• Chesapeake Energy Corp. took steps to refine some of its performance standards for awarding executive compensation. In response, the Trowel Trades fund withdrew its proposal.


• Citigroup Inc. switched to performance from discretionary standards on executive compensation, leading a group of shareholders to withdraw a related proposal. The sponsors of the proposal were the Philadelphia fund, the Kansas City (Mo.) Firefighters' Pension System; Miami Firefighters' Relief and Pension Fund, and the Trowel Trades fund.
  
  

  In addition, the AFL-CIO, which sponsors a $3.3 billion AFL-CIO equity index fund, withdrew its proxy proposal opposing accelerated vesting at Citigroup in response to the company's decision to not accelerate awards in changes of control.



• Dean Foods Co. implemented an independent chair structure before the vote on an AFL-CIO index fund proposal calling for such a move. The proposal received 8% of the vote. In 2012, a similar proposal by the AFSCME Employees Pension Plan won 46% shareholder support.


• Pitney Bowes Inc. appointed an independent chair, leading the AFL-CIO index fund to withdraw a related shareholder proposal.


• Ventas Inc. implemented a no-gross-up policy, leading the Amalgamated Bank Longview Fund to withdraw a related proposal.

“The 2013 successes at Abbott Laboratories (and) Dean Foods (as well as other companies) were in many ways generated by 2012 engagements at those companies on the same issues,” Greg A. Kinczewski, vice president and general counsel at Marco Consulting, said in an e-mailed response to questions.

The outcomes are the key results the group achieved this year as a result of engagements that began last year, targeting companies that had received less than 80% of shareholder endorsement of executive compensation policies in say-on-pay voting in 2011, Mr. Kinczewski said. The group also achieved some positive outcomes last year at companies.

“We assumed they would be at least receptive and hopefully responsive to the need to change their compensation policies,” Mr. Kinczewski said in his e-mail.

In terms of the power of shareholder engagement or discussions with companies to encourage corporate governance changes, Mr. Kinczewski noted in his e-mail. Pitney Bowes “took significant actions on their own even prior to being engaged. ... There were no substantive discussions with Abbott Laboratories.”

The investor group's effort “shows that a lot can be accomplished without having to get a majority vote” in a shareholder proposal, Mr. Kinczewski said in the e-mail.

“Getting … widespread institutional support can take time. For example, in 1987 declassified board proposals only averaged 16% of the vote. In 2012, it had risen to 81%.”

The investor group's proposals don't generally generate that groundswell of support, “although I suspect the fact that almost all of our no-gross-up proposals end up being withdrawn because companies implement them is a good indication that they would have an excellent chance of getting a majority vote if they ever went” to a vote, Mr. Kinczewski wrote.

“Obviously, the more likely you are to get a majority vote, the more likely the companies are to negotiate on them,” Mr. Kinczewski wrote. But the investor group's engagement “has been doing fine without the certainty of a majority vote … most companies take them (the shareholder proponents) seriously and are willing to make progress on them and sometimes adopt them. That's the real point of the engagement.”