Proxy Access

SEC Staff Announces Fall Roundtable on Proxy Process

The SEC staff has announced that they will be hosting a roundtable event at some point this Fall to collect comments and feedback from investors and market participants about possible refinements to the SEC’s proxy rules. The potential topics for consideration include: Voting Process, Retail Shareholder Participation, Shareholder Proposals, Proxy Advisory Firms, Technology and Innovation, and Other Commission Action.

Click here for the SEC’s official announcement.

SEC Staff Comments on Proxy Access “Fix-It” Proposals

It is no surprise that the number one topic of discussion this proxy season so far is…proxy access. (You thought I was going to say the Trump Administration, didn’t you!)  Proponents are not just targeting companies to adopt bylaws, but are equally focused on submitting “fix-it” proposals to companies that have previously adopted bylaws considered by certain shareholders to fall short of “best” or “acceptable” standards.

SEC staff have, so far, been consistent with last year:  affirming that shareholder proposals seeking adoption of proxy access bylaws are considered substantially implemented if the company adopts terms permitting shareholders that own 3% or more for at least three years to nominate the greater of two directors, or 20%, of the board (“3-3-20”).  This holds true even in the event the company decides to adopt additional restrictions, such as aggregation limits.  It would appear that in the staff’s view substantial implementation does not mean exact implementation.

The situation surrounding “fix-it” proposals is a different story.  Aggregation limits remain an issue for many shareholders.  Earlier in the season we saw a number of proposals asking companies that had previously adopted proxy access bylaws to amend certain terms (such as the number of shareholders that can aggregate to form a group).  Previously, the SEC did not grant relief to companies in this scenario.  However, mostly due to concerns of larger shareholders, these proposals did not receive significant support: H&R Block (30%), Microsoft (27%), and Whole Foods (37%).

After this first salvo, shareholder groups changed course to adopt a more focused approach.  A number of companies with later deadlines received new proposals to amend their proxy access bylaws seeking modification of a single term:  amending the 20-shareholder aggregation limit to allow between 40 or 50 shareholders to form a group.

Last week, the SEC staff responded to a number of no-action requests on this issue with mixed results.  It appears that companies that clearly detailed the inability of the increased aggregation limit to materially enhance the ability of shareholders to use proxy access were granted relief. As any combination of shareholders possessing minimum ownership thresholds are able to form a group, this can, therefore, be viewed as having met the essential objectives of the proposal.

We will provide further details on this issue during the coming weeks.

CII Report on Proxy Access by Private Ordering

On February 2, the Council of Institutional Investors (CII) released a report on proxy access bylaw provisions adopted by 347 U.S. public companies.  The report analyzes data collected by the law firm of Covington & Burling on access bylaws, detailing the similarity of key provisions.

Ninety-seven percent of the proxy access bylaws reviewed mandate a 3% ownership threshold; a shareholder, or group of shareholders, seeking to nominate a director(s) via proxy access must own at least 3% of outstanding shares.  This has been a focus of many “fix-it” proposals, pushing for companies to lower the originally adopted threshold from 5% to 3%.

Ninety-eight percent of these companies mandate a three-year holding period:  a shareholder, or group of shareholders, seeking to nominate via proxy access must be able to demonstrate that they have met the minimum stock ownership requirement for three years preceding the nomination.

More than eighty percent of these companies cap the number of access-nominated directors at 20 percent of the board.  A majority of these, 64%, cite the greater of two directors or 20 percent.

The full CII report can be viewed here

Prism Webinar Recording Now Available

In December, 2016, we were joined by Keir Gumbs, Partner, Covington and Burling, and Marty Dunn, Partner, Morrison & Foerster, to discuss the latest developments at the SEC and a securities law update.

General topics included:

  • Proxy Access – evolving provisions and proponent tactics
  • 14a-8 interpretation and application
  • Impact of the election and the future of Dodd-Frank and the SEC
  • Universal ballot, executive compensation policies and other impending rule-making initiatives
  • 14a-8 interpretation and application
  • SEC disclosure effectiveness initiative

You can listen to the full presentation HERE

New Prism Webinar – 2017 ISS & Proxy Update

On January 12th, 2017, we will be joined by ISS to discuss the new 2017 voting policies, the updated equity compensation plan scorecard, and “QualityScore”, and look ahead to the 2017 proxy season.

Prism - ISS cover

Register for the webinar

Brendan Sheehan and David Bobker from the Corporate Governance Intelligence Council will be joined by Peter Kimball, Head of Advisory & Client Services, Institutional Shareholder Services (ISS) Corporate Advisory, from 1-2 PM EST to preview the 2017 proxy season and discuss the application and impact of the amended 2017 ISS Voting Policies.

General Topics for Discussion:

• Shareholder resolution scorecard for 2017

• 2017 ISS voting policy updates

• Focus on the board

• Proxy Access, what’s next?

• ISS Equity Compensation Plan scorecard

• “QualityScore”