Annual Meetings

Shareholder Proposal Tumult at Netflix

Five of six shareholder proposals voted on at Netflix’s 2018 Annual Meeting, held on June 6th, which the board recommended voting AGAINST, received majority support. Due to the pre-existing supermajority bylaw, only four of the non-binding measures passed. With institutions owning 95% of outstanding shares, the most sizable shareholder proposal victory (according to the June 8th 8-K filing) was the 85% support to institute a simple majority vote standard for director nominations.

Three other prevailing shareholder resolutions, if enacted, would adopt proxy access (3% holders for three years to elect either two directors or up to a quarter of the board) and grant shareholder the right to act by written consent. Also, with 72% of the vote, investor groups with a 15% ownership stake may call special meetings (a provision not currently enacted). Currently, the average ownership threshold for this provision among S&P 500 companies is 25%.

Notably, the Say on Pay support declined from 96% in 2017, to 62% this year. This vote is in the wake of Netflix’s conversion of its performance-based incentives into cash salary. Average NEO total compensation jumped 8% on average from 2016 to 2017.

Gender Pay Grilling at Schroders

On Thursday, April 26th, UK financial services firm, Schroders, held their annual meeting, wherein a representative from ShareAction, a shareholder advocacy group, grilled CEO Peter Harrison about the company’s gender pay practices. This is in the aftermath of their UK-mandated gender pay disparity disclosure, which revealed a 27% mean pay gap (expressed as % higher pay for males) and a 29% median pay gap. In addition, results showed a skewed proportion of women on management teams compared to the 53% of females in the bottom quartile of employees.

Spurred on by front-page gender discrimination litigation at Alphabet and Oracle, increasingly, publicly-held firms (especially in IT and financial services) are either receiving this gender pay resolution from shareholders, voluntarily undertaking a pay gap analysis as Salesforce.com did or starting to roll out their federal EEO-1 workforce demographic stats on their websites.

This comes at a time when, not only in Europe, but in the US, the issue of gender pay and diversity is becoming increasingly contentious. While “blue chip” boards in the US and Europe are making strides toward improving board gender diversity, activists like ShareAction are aiming focus elsewhere in companies other than the board level (i.e., leadership and C-Suite diversity). Last year, five S&P 100 banks that received the gender pay shareholder proposal disclosed an average of 55% female global employees, 30% female global leadership, 22% female named executive officers and 27% females in board seats. Schroders, interestingly, voted FOR 18% of shareholder proposals calling for an evaluation of gender pay discrepancies at US firms last year.

The CGIC is set to release an analysis of the gender pay gap proposal in 2017. Please contact Dave Bobker with inquiries regarding this study.

Gun Manufacturers Under Pressure

ISS and Glass Lewis have supported a shareholder proposal submitted by the Sisters of the Holy Names of Jesus and Mary to Sturm, Ruger & Company calling on the gunmaker to create a report on gun safety.

The board recommended that shareholders vote against the proposal. In the proxy statement, the company stated that, “The intentional criminal misuse of firearms is beyond our control. Similarly, the constitutional right of firearms ownership carries with it certain responsibilities, and the Company has long advocated the safe and responsible ownership and use of firearms.”

BlackRock and Vanguard are the two largest investors in Sturm Ruger, collectively owning around 25 percent of the company’s outstanding stock. Both asset managers have publicly declared that they will raise safety concerns with gunmakers—we commented on BlackRock’s public stance on the issue in the blog post BlackRock Targets Gun Manufacturers on March 2 in the wake of the Stoneman Douglas High School shooting. So far, neither fund has made any further public statement on the issue or on this proposal. We will closely monitor the situation for their potential support, which would appear to be likely, given their previous concerns and tougher stance on several social issues.

Given the current scrutiny on the voting of larger investors, that it is aligned with public commentary, we should expect further media commentary after the annual meeting for Sturm, Ruger and peers.

2018 Proxy Voting Policy Updates

State Street Global Advisors, T. Rowe Price and Goldman Sachs have all updated their 2018 proxy voting policies.

The updated policy documents are available on the Governance Gateway to all CGIC members.  A few of the amendments are noted below.

State Street Global Advisors reiterated their backing of ISG’s six corporate governance principles and expects that issuers comply or explain any deviations via direct engagement. They will evaluate poison pill proposals at Canadian companies on a case-by-case basis, looking at whether it conforms to a “new generation” rights plan. They will rely on engagement to examine Canadian companies’ compensation plans.

T. Rowe Price (which has switched from using Glass Lewis to ISS as their proxy advisor) stated they intend to focus on board diversity during engagement but will hold out (for now) on releasing new voting guidelines based on ethnic and gender board diversity. Their policy is to always vote against shareholders’ right to act by written consent, and “other business” proposals that lack specificity. When analysing pay-for-performance, T. Rowe Price nixed the use of Glass Lewis and Equilar’s outside research for assessing linkage between compensation and companies’ three-, four- and five-year incremental TSR.

GSAM’s updated US proxy voting guidelines included an amendment to vote against or withhold on certain directors or the lead director/chairman when average board tenure exceeds 15 years and there has not been a new nominee over the last five years.

Virtual Annual Meetings

Broadridge has released updated “Facts & Figures” on virtual shareholder meetings conducted in 2017.  Some of the noteworthy statistics for meetings held in 2017 are:

  • 236 companies held virtual annual meetings, 90% of these were virtual-only;
  • 57% of the companies that held virtual meetings were small-cap, 26% were mid-cap, and 17% were large-cap;
  • 97% of virtual-only meetings were conducted with live audio, just 3% with live video;
  • 83% of hybrid meetings were conducted with live audio, with 17% using live video;
  • 98% of companies allowed questions to be submitted online during the meeting, with 11% allowing questions to be submitted prior to the meeting and 10% allowing live questions telephonically during the meeting;
  • Virginia and Wisconsin amended corporate laws to allow virtual-only meetings, bringing the total number of states that allow this format to 30.  An additional 12 states permit hybrid meetings.

Broadridge anticipates an increase in virtual meetings in 2018, expecting to host at least 300 this year.

The full Broadridge report can be viewed here: Virtual Shareholder Meetings: 2017 Facts & Figures