Proxy Access: The Brave New World of Director Elections
In recent years, shareholder activism has increasingly focused on board performance and the right of shareholders to replace directors. "Proxy Access" is a term that refers to shareholders, who meet certain ownership requirements, having the ability to place their nominees for director on a company's proxy card.
Proxy Access has been in the spotlight this year as there has been a push from some shareholders and activists for companies to adopt Proxy Access. The most recent edition of ProxyPulse TM indicated that seventy percent of the more than 80 proxy access proposals voted on during the 2015 proxy season received majority support from shareholders. In contrast, during the 2014 proxy season, only ten proposals were voted on, with only three attaining majority support.
This timely panel discussion will focus on:
- The SEC's position on proxy access
- What, if anything, should companies and boards of directors be doing to prepare?
- What can we expect for 2016?
Keir Gumbs, Partner, Covington & Burling LLP
Scott Zdrazil, Director of Strategy and Corporate Engagement, Office of NYC Comptroller
Sharyn Bilenker, Vice President of Corporate Affairs and Strategic Development, Broadridge Financial Solutions
NACD NJ PROGRAM SUMMARY:
PROXY ACCESS: THE BRAVE NEW WORLD OF DIRECTOR ELECTIONS
On November 17, a distinguished panel of experts updated the Chapter membership on the SEC’s proposal to allow significant shareholders to use a company’s existing proxy machinery to propose for election a slate of director candidates in opposition to the slate nominated by the company. Joining moderator Sharyn Bilenker, VP of Corporate Affairs and Strategic Development at Broadridge Financial Solutions, were Scott Zdrazil, Director of Strategy and Corporate Engagement in the NYC Comptroller’s Office and a proponent of proxy access, and Keir Gumbs, partner in the law firm Covington & Burling and an former senior SEC staffer, who centers his practice in this area.
The SEC’s current proposal is the latest in a line of six controversial proposals issued in this area over the past few years, that have sought to strike the appropriate balance in terms of the details. The main issues center around the size of the shareholdings an investor would need in order to utilize the new rule, the length of time those shares would need to be held and the number of director candidates the shareholder would be allowed to propose.
Those pressing to have a rule adopted include institutional shareholders such as pension plans, shareholder activists and proxy advisory firms. Advocates predict that a rule would help insure that companies have the right kind of directors in place to foster long term company growth. It could also have an important “in terrorem” effect on company management in cases where management-shareholder communications are ongoing, even if no competing slate is ever proposed. Opponents cite the potential for disruptive voices to enter Board deliberations on vital topics about which they have very little history.
Despite the continuing debate over proposals, more and more large companies are implementing proxy access on their own. About seventy large companies have done so to date, and there may well be more than thirty more that do so in time for the 2016 proxy season. No actual elections between competing slates have yet taken place under proxy access, but it seems likely the initial ones will occur in 2016.
The question was asked why a Board would favor adopting a proxy access procedure if not compelled to do so by the SEC. The panel expressed the view that it may be important to “control the debate.” More importantly, the preliminary data seem to show that proxy access may increase market value, so that it may be in the company’s best interests to move now. In fact, if the trend accelerates as the panel predicted, there may be no need in the long run for the SEC to adopt any rule in this area.
Briefly mentioned were three other areas of current SEC focus: executive pay ratio, political disclosure and the so-called “universal proxy.”
Location and Time
Stony Hill Inn
231 Polify Road
Hackensack, NJ 07601
Breakfast: 7:30am - 9:30am