Proxy access shareholder proposals were relatively successful during the 2015 proxy season: reports indicate that of 82 proxy access shareholder proposals going to vote, 48 have passed with average 54.4% support. ISS recommended a vote “for” all of the shareholder proposals, most of which included thresholds mirroring the SEC’s vacated 2010 proxy access rule: an ownership threshold of 3% of the company’s stock for three or more years, and the right to nominate up to 25% of the company’s board. Pressure from investors and governance organizations for companies to adopt proxy access will continue during the 2016 proxy season. Many companies will receive proxy access shareholder proposals or will decide to address proxy access on their own initiative. These companies must carefully consider strategies for engaging with investors and whether, and if so, in what form, to adopt proxy access bylaws.
While supporters are proclaiming that proxy access will inevitably become a mainstream governance practice such as majority voting and annual election of directors, proxy access market practices are evolving. Two recent developments indicate that the devil may be in the details, as companies and proxy access proponents continue to debate what restrictions on shareholders’ rights to access the company’s proxy statement for director nominations are acceptable.
CII Guidance on Proxy Access Best Practices
On August 5, the Council for Institutional Investors (CII) issued guidance on what it deems to be “best practices” for proxy access provisions. Among other things, CII discourages:
- ownership thresholds of 5% or more;
- the right to nominate fewer than two directors;
- limiting the number of shareholders who can aggregate to form a group;
- prohibiting loaned shares from counting toward ownership thresholds;
- requiring continued share ownership after the annual meeting; and
- limitations on third-party compensation.
A recent report in The Wall Street Journal looked at the proxy access bylaws adopted during the 2015 proxy season and found that almost all of them failed to meet one or more of CII’s criteria. Seehttp://www.wsj.com/articles/investor-group-challenges-access-to-companies-boards-1438740001. Find the CII guidance at http://www.cii.org/.