STRATEGIES FOR THE 2015 PROXY SEASON
During the past decade, the length of proxy statements has doubled – from an average of 30 pages to now 60 pages. Though SEC – mandated enhanced disclosure requirements account for much of it, the increase is also due to the fact that the proxy statement now serves multiple audiences:
- Shareholder Activists seek a forum for both political and social causes as part of a broader strategy;
- Institutional Shareholders seek to exert influence to hold companies accountable for what they believe to be sound governance principles;
- SEC and other regulators read to confirm compliance with applicable disclosure requirements;
- Customers and suppliers read the proxy statement to find out more about the companies they do business with;
- Insititutional Investors with different investment objectives read to learn more about potential portfolio companies;
- Employees and media read to learn how much top executives are paid;
- “Sue on Pay” law firms read for potential lawsuits.
With so many constituencies to serve, it is more important than ever to write the proxy statement carefully and thoroughly. Here are some things to keep in mind for 2015.
Say on Pay Votes.
Say on Pay votes have remained steady for the past several years and should continue to do so in 2015. Last year, the average support for say on pay questions was 90%, about the same as the past several years.
Key Shareholder Proposals.
The most frequently submitted shareholder proposals in 2014 were:
– Ability to call special meetings 45%
– Ability to act by written consent 38%
– Proxy Access to shareholder nominees 37%
– Limited vesting under Change in Control Provisions 36%
– Independent Chairman 31%
– Reporting of political contributions/policies 28%
– Disclosure of lobbying expenditures 25%
There were two developments last year relating to director tenure:
-ISS included director tenure as one of five new governance factors that it will consider in its “Quickscore” analysis;
– State Street global Advisors adopted a policy that allows it to vote against long-serving directors if it concludes that the company is in need of “board refreshment.”
ISS also implemented additional changes:
– Independent Chairman Proposals (focusing on longer-term performance)
– Equity Plan Proposals
o New “Equity Plan Scorecard”
o Decisions not solely on quantitative tests; plan features and grant practicesill be reviewed as well Dodd-Frank Rulemaking.
Nothing happening. Rules proposed on pay ratios in 2013 but no final rules adopted; no proposals on clawbacks, hedging policy or pay-for-performance disclosures.
Continued as a theme. Most litigation was either from plaintiff’s firm that equity plan disclosure was inadequate or alleging technical deficiencies.