Through the collective efforts of large institutional investors, including public and private pension funds, shareholders at a significant number of companies are likely within the next several years to gain the power to nominate a portion of the board without undertaking the expense of a proxy solicitation. By obtaining proxy access—the ability to include shareholder nominees in the company’s own proxy materials—activists and other shareholders will have an additional weapon in their arsenal to influence board decisions.
While proxy access has been the subject of shareholder proposals for several years, 2015 appears to be a turning point. Proxy access is taking hold this year, with a major initiative from public pension funds led by New York City Comptroller Scott M. Stringer. Major investors, such as TIAA-CREF, and the large institutional investor industry group the Council of Institutional Investors, are encouraging these efforts. Adding to the momentum is the SEC’s removal for the 2015 proxy season of a key defense that has been traditionally used by companies. The SEC announced that, during the 2015 proxy season, it would no longer grant no-action relief in situations in which a company intends to put forward its own competing proposal. Proxy advisory firm policies that support proxy access and discourage efforts to defend against proxy access proposals add to the momentum.
The 2015 proxy season has seen a significant increase in the number of shareholder proxy access proposals and shareholder support for such proposals, as well as an increased frequency of negotiation and voluntary adoption of proxy access via board action or submission of a management proposal to a shareholder vote. As of July 31, 2015:
- 84 shareholder proxy access proposals had been voted on in 2015 with average support of more than 54% of votes cast and 49 proposals passing;
- of the 12 management proxy access proposals voted on in 2015, seven have passed; and
- 26 companies have adopted proxy access in 2015, and several additional companies have publicly committed to adopt proxy access later in 2015 or in 2016.
As companies are considering whether and when to adopt proxy access, they should:
- follow developments in this area and keep the board of directors and the nominating and corporate governance committee generally apprised;
- know the preferences of their shareholder base (as evidenced in proxy voting policies and voting history on proxy access proposals) and engage with shareholders with respect to proxy access;
- stay current on proxy advisory firm policies and guidance relating to proxy access;
- keep apprised of the terms upon which companies are adopting proxy access (e.g., ownership threshold, holding period, limits on the number of seats at issue, limits on the number of shareholders who can combine to meet the threshold, nominee requirements and shareholder and nominee disclosure requirements), which, in some cases, appear to be settling in on a market standard as described in the Sidley update linked below; and
- review the advance notice and director qualification provisions in the bylaws and consider how such provisions may be aligned with a proxy access bylaw if adopted.