Proxy fight Definition

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By Laura J. Finn

As boards move into the new year, the events and trends from 2012 annual meetings become the prologue for companies and boards preparing for the 2013 proxy season. During 2012, for instance, say-on-pay proposals garnered the lion’s share of attention (and contention) from shareholders and other investor advocates, but a string of other investor targets—political contributions, proxy access, board declassification, and others—shared the spotlight as well. The following is a roundup of issues directors should keep their eye on to prepare for the months ahead.

A dark horse issue during the 2012 proxy season was proxy access. After the U.S. Court of Appeals ruled against mandatory shareholder access to the proxy in 2011, many observers surmised the issue would quietly fade away. Instead, a number of proposals garnered supporting votes for increased shareholder access to the proxy in 2012. At drilling company Nabors Industries Ltd. and natural gas producer Chesapeake Energy Corp., for instance, shareholders voted by a majority to enact proxy access.

At computer maker Hewlett-Packard Co., management came to a compromise with shareholders by agreeing to submit a proposal on proxy access at the 2013 annual meeting. Thus far, five proxy access proposals have already been filed for the upcoming season. Susan Webster, a partner at Cravath, Swaine & Moore says companies are beginning to prepare for proxy access and other governance-related proposals by being more reactive to the shareholder base than they were in the past. She believes the tide may be shifting in this arena, saying a regulatory mandate for proxy access “may be a possibility in the next four years.”

A movement to declassify boards, meaning that all board members would be up for reelection annually rather than on a staggered basis, is gaining steam. This activity is largely being spearheaded by the Shareholder Rights Project (SRP), a clinical program at Harvard Law School that works to improve corporate governance at publicly traded companies through research and policy projects. While many companies have already declassified their boards, the SRP is pushing hard on the issue and plans to file proposals at 74 S&P 500 and Fortune 500 companies in the 2013 season.

During 2012, the SRP worked with six institutional investors to file declassification proposals at 89 companies and, as a result, more than one-third agreed to declassify their boards. Additionally, the SRP reported on its website that of the 40 companies where the issue went to a vote, proposals at 38 won an average of 82% of votes cast, a strong show of support. According to Lucian Bebchuk, Harvard professor and director of the SRP, “The widespread and strong support for board declassification is reflected in the outcome of the declassification proposals by SRP-represented investors that went to a vote during 2012.”

For 2013, declassification will continue to be a front-and-center issue. Behind the scenes SRP is communicating with most of the 74 companies receiving declassification proposals for their 2013 meetings, and Bebchuk expects a substantial number of these companies will agree to move to annual elections, as many targeted companies did last year. Bebchuk believes this is a positive governance trend, and says “the boards of these companies should be commended for their responsiveness to shareholder concerns.”

On the political front, even with the presidential election behind us, political spending is a hot-button issue that James R. Copland, director of the Manhattan Institute’s Center for Legal Policy, will be watching closely this year. Manhattan Institute’s Center for Legal Policy website,, tracks shareholder proposals at Fortune 200 companies, and during 2012, it counted 37 shareholder proposals regarding political spending disclosure. Interestingly, of those, not one garnered a majority vote. Nevertheless, boards should watch for political spending disclosure proposals to continue to be filed in the coming proxy season, as Copland believes this is a trend that is gaining traction.

Say on pay has cycled through two proxy seasons, with the results being fairly consistent between 2011 and 2012. Experts say the upcoming focus will be on companies that received a negative vote in 2012 and that are not making changes acceptable to the shareholder base going into 2013. In addition, compensation experts note that say on pay will likely be a big challenge for the smaller companies that were initially exempted from the proposals but whose shareholders will be required to vote on pay packages for the first time.

Another aspect that will gain investor attention in 2013 involves pay package descriptions. In some cases, the wording of such descriptions may have the potential to help companies garner a larger percentage of favorable votes from shareholders, explains Andrew McElheran, senior consultant, Meridian Compensation Partners. A tool known as “realizable pay, ” or “grant date pay, ” may help companies change the way they explain executive compensation, he says.


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