A Securities and Exchange Commission round table on Thursday on whether to change SEC rules to facilitate the use of a so-called universal proxy ballot in shareholder voting generated a range of rousting viewpoints from panelists, representing an asset owner, corporation and activist hedge fund among others.
Anne Simpson, senior portfolio manager and director of global governance at the $295.7 billion California Public Employees’ Retirement System, Sacramento, and one of the panelists, called for adopting a universal ballot that would contain all nominees for a corporate board of directors, both those of management and activist investors.
It would enable shareholders to vote for a full set of directors to a board using one ballot card, instead of the current process of management and activist investors each sending out its own proxy ballot with only its own nominees.
A universal proxy ballot “would facilitate a higher degree of shareholder engagement and more candidates coming forward,” Ms. Simpson said. “This is a situation where change needs to take place for good economic reasons.”
“What we are trying to do here is actually achieve simplicity,” Ms. Simpson said. “That is to allow the owners of the corporation … (to) decide the team to be the directors. … All we’re talking about is allowing the proxy voter to have the same ability that that voter would have if they were to attend (the annual meeting) in person,” where a universal ballot is available. “Right now, we can do all this if only we attended the meetings and that’s just not practical.”
Sarah B. Teslik, senior vice president-communications, public affairs, governance at Apache Corp., Houston, and a panelist, expressed concerns about tipping the balance of decisions to shareholders to the detriment of corporations.
“We here at least have to run a profitable business competing globally with whatever rules you come up with,” said Ms. Teslik, who is also a former executive director of the Council of Institutional Investors.
“We all should want a process that most accurately fairly and inexpensively reflects what voters want,” Ms. Teslik said. “We are not afraid of accountability.”
“It doesn’t strike me we have an absence of activism right now and need commission help in having more of it. ... I’m just not sure that is commission time worthy,” she added.
“There seems to be an assumption … that only if we could have more issues that are given to shareholders to decide by vote, companies will be more accountable and more competitive globally,” Ms. Teslik said. “We believe in accountability … but I’m not sure that it follows that a shareholder-centric model where (corporations) make fewer decisions and shareholders make more is better.”
Fellow panelist Charles Penner, partner and chief legal officer, JANA Partners LLC, said, “From a narrow activist perspective, I don’t know that having a universal ballot necessarily helps us. There are plenty of situations it wouldn’t help us,” such as when an activist investor has some candidates for the board not as appealing to shareholders, “you are probably worse off with a universal ballot because you are going to get fewer people on the board.”
“Sending out your own ballot makes more sense,” Mr. Penner added.
But “from a capital markets perspective, (a universal ballot) on balance probably makes sense,” Mr. Penner said. “It certainly makes it simpler. … It encourages people to focus on the right thing, which is obviously picking the strongest candidates.”
Another panelist, Chris Cernich, deputy director global research, Institutional Shareholder Services Inc., said based on experience in Canada with a universal ballot, “it’s not necessarily the case that creating a universal ballot means there is going to be a flood of additional activists that want to be on the ballot.”
Among other panelists, Michelle Lowry, TD Bank professor, LeBow College of Business, Drexel University, Philadelphia, pointed out, “There is unfortunately no direct academic evidence on universal proxies. … To the extent that waging an activist campaign is very expensive, I don’t know that universal proxy affects the explicit costs of it. … It’s difficult to say overall one side would get systematically more seats” — management or activist nominees — as a result of a universal ballot.
The SEC should focus on having “a robust democratic system,” Ms. Lowry said, asking rhetorically, “What is the argument against giving shareholders the flexibility to decide what they want?”
David A. Katz, partner at law firm Wachtell, Lipton, Rosen & Katz, and also a panelist, challenged Ms. Simpson about the impracticality of attending annual shareholder meetings, asking, “Why isn’t it practical? It’s not like there are thousands of contests.”
Ms. Simpson responded, “What is the purpose of having a proxy? … The whole purpose of having a proxy is to level the playing field between all the providers of capital,” including those who cannot attend.
Mr. Katz said, “I’m very concerned that by simply fixing a small piece of a machine that is broken is going to have very significant unintended consequences.” He did not elaborate.
“I think it’s a bit like taking in your car,” Ms. Simpson said. “You know you need to replace the tires, the carburetor has smoke pouring out, the steering wheel is dodgy. You do the priority things first. … You get the brakes fixed, make sure you have the smog test.”
Mr. Katz said, “I’m concerned about … more (proxy) contests,” that have activists seeking seats on the board. “That’s a distraction” to board work, Mr. Katz said. “If you go too far toward a shareholder-centric model, in my view, you are going to impose a real cost on companies. You are going to stifle innovation. You are going to lose the public-company dynamic.”
“I very much worry this (universal ballot) will help push the focus to even more short-termism,” Mr. Katz said. “If you make the model too shareholder-centric — shareholders make decisions based on the here and now — but we make investments for companies based on the future.”
