By Jacquelyn Lumb.
Panelists at the Practising Law Institute’s conference on corporate governance offered guidance for a successful proxy season, including an update on proxy advisory firm recommendations and shareholder proposals. Cleary Gottlieb’s Sandra Flow reported that ISS and Glass Lewis both changed their policies on director “overboarding.” ISS decreased the number of boards on which non-CEO directors should serve from six to five, and Glass Lewis decreased it from six to five for non-executive officer directors. In December, ISS issued 78 FAQs that address, among other things, the types of unilateral by-law and charter amendments that will be viewed as diminishing shareholder rights and how ISS will evaluate a board’s implementation of proxy access in response to a majority supported shareholder proposal.
Last proxy season. The panel provided an overview of the 2015 proxy season, in which approximately 1,030 shareholder proposals were submitted to 540 companies. About 18 percent of the proposals were withdrawn and about 14 percent were excluded on the basis of no-action requests that were granted by the SEC staff. There were 318 no-action requests in 2015 compared to 295 in 2014. No-action relief was granted 61 percent of the time in 2015 compared to 71 percent in 2014.
According to ISS data, nearly 38 percent of the shareholder proposals were social and 62 percent were governance-related. Proxy access proposals, on average, received supporting votes of 55 percent. There were 11 different proposals, and 71 overall, relating to political contributions and lobbying practices which received an average support of 27 percent. None received majority support, but 10 received over 40 percent in support.
Since the staff issued guidance on Rule 14a-8(i)(9) on proposals that directly conflict with one proposed by management, the exclusion has been rendered largely unusable, according to a slide presented by the panel. The panel predicted that staff statements on Rule 14a-8(i)(10) regarding whether a proposal has been substantially implemented may be the next battlefield.
Shareholder proposal tips. Martin Dunn, with Morrison & Foerster, provided shareholder proposal tips, beginning with a review of the proposal to identify any procedural deficiencies. He reminded registrants that they have only two weeks to send the notice of deficiency to a proponent. He advised registrants to keep current with developments in recent no-action letters. Someone may have submitted a similar request with a better argument, he explained.
Companies have begun to adopt proxy access proposals on their own, according to Wilmer Cutler’s Lillian Brown. Many are modeled after the SEC’s proxy access rule which proposed three percent ownership of shares held for a minimum of three years and a right to approve up to 25 percent of the board. If a company has not received a proxy access proposal, it probably will, she said, so it should be prepared for it. She added that companies should stay tuned to how the SEC determines substantial implementation in this area.
Clearly Gottlieb’s Alan Beller, a co-chair of the PLI program and a former director of the SEC’s Division of Corporation Finance, agreed that companies should have a by-law ready when a proposal comes. There is preparation work to be done even if a company has no intention of adopting proxy access, he said.