Proxy access is shaping up to be a major hot-button issue during the upcoming annual meeting season. Already at least 13 companies have become targets of non-binding shareholder resolutions calling on companies to let shareholders nominate directors to their boards.
The latest companies to become targets: Hewlett-Packard and Goldman Sachs.
But the proposed criteria for giving shareholders such a right vary to some degree. Proxy voting consultant Institutional Shareholder Services reports that the proposals made so far during the 2012 season demand three different criteria, and says it expects the variations to grow.
For example, the non-binding proposal submitted by Amalgamated Bank calls on HP’s board to adopt a bylaw that would permit investors who own 3 percent of the stock continuously for three years to nominate up to 25 percent of total board seats. ISS says the proposal is similar to the SEC’s Rule 14a-11, which would have required all publicly traded companies to offer such board nomination rights but was struck down by a federal appeals court in July.
“Continuing governance problems at their board prompted us to take a look,” says Cornish Hitchcock, a lawyer representing Amalgamated. He points out that in 2007 a similar resolution at HP received the support of 43 percent of shareholders.
In a statement supporting the proposal, Amalgamated points out that HP has experienced a 49 percent decline in shareholder returns for the three years ending in September 2011, compared with a 26 percent increase in S&P’s Technology & Hardware Equipment Industry index and a 25 percent gain in the Information Technology Sector. The statement also cites an “erratic” business strategy, marked by a decision – quickly amended – to terminate HP’s new tablet, as well as months of uncertainty about whether HP would remain in the personal computer business, along with three abrupt CEO departures in under seven years and a 52 percent “no” vote on HP’s compensation report at the 2011 annual meeting.
Since it typically holds its annual meeting in March, HP is likely to become the first test case for the new wave of proxy access shareholder resolutions. “It will be the Iowa Caucus for proxy access,” Hitchcock quips.
The Goldman Sachs proposal was sponsored by activist James McRitchie, who is trying to get small investors more say in the boardroom. His proposal would permit shareholders who own just 1 percent of the stock for two years and groups of 100 or more investors who each hold at least $2,000 in company stock for one year to nominate directors.
Meanwhile, Norwegian pension fund Norges Bank Investment Management recently filed six proposals for proxy access at Wells Fargo, Charles Schwab, Western Union, Staples, Pioneer Natural Resources, and CME Group that require shareholders to own 1 percent of the stock for at least one year.
At this point, ISS has not embraced any particular set of criteria, saying it will analyze the proposals on a case-by-case basis. However, ISS special counsel Patrick McGurn said that he is concerned about potential side effects if the bar is set too low.
“It is like Baskin Robbins,” said McGurn. “We could have 31 flavors of proposals” by the time all of the proposals are filed.
When the SEC’s Rule 14a-11, which would have required companies to include shareholders’ director nominees in company proxy materials under certain circumstances, was vacated by the U.S. Court of Appeals because it asserted the commission was “arbitrary and capricious” when it instituted the rule, the SEC chose not to seek a rehearing of the decision or Supreme Court review. But when it adopted Rule 14a-11, it also adopted amendments to Rule 14a-8, which gave eligible shareholders permission to require companies to include proxy access resolutions in company proxy materials.
