MORE “RAZOR-THIN VOTING MARGINS” THAN EVER AT 2018 SHAREHOLDER MEETINGS
WITH “DIVERSITY” AND ESG ISSUES, AND MAYBE SAYS-ON-PAY COMING TO THE FOREFRONT, WE PREDICT MORE “RAZOR-THIN VOTING MARGINS” THAN EVER: WE EXPLAIN WHY - AND WHAT YOU NEED TO BE DOING NOW
The 2017 Annual Meeting Season saw an unprecedented number of elections that were decided by razor-thin margins. In mid-2017, for example, we reported that at one of the shareholder meetings your editor and his business partner inspected, one of the six shareholder proposals received 49.85% of the votes cast while the company-favored votes against garnered 50.15% - a difference of just 8-million-odd votes out of 2.75 billion that were cast on the matter - or a mere three-tenths of one-percent of the votes cast. Put the way a smart Inspector should put it, if just 4-million-odd votes were erroneously recorded as against instead of for, the vote would go the other way.
Then came the P&G fiasco, where first, P&G claimed victory over the dissident director candidate, Nelson Peltz by a 6.15 million vote margin, or a mere 0.2% of the votes cast. But then, after a “recount,” the Inspectors of Election proclaimed that Peltz was the winner - by an unbelievably small 42,780 votes - an astonishing margin of 0.0016% out of roughly 2 billion votes cast!
But then, after a recount of the recounted proxies (!) some 500,000 votes for the management slate turned up - somehow, somewhere - leaving Peltz behind again, the Inspectors said, by a bigger but still miniscule margin of 0.02%.
Given the earlier vote counting and reporting efforts, the three sets of numbers reported, and using a “reasonable” margin of error - where, clearly there were more than a few errors, this was statistically a tie, any way you slice it. And, come the end, P&G decided to seat Peltz after all - after spending over $100 million, Peltz estimated, to deny him a seat! What a mess!
IN 2018 WE ARE PREDICTING THAT MORE VOTES THAN EVER WILL BE DECIDED BY RAZOR-THIN MARGINS LIKE THESE: HERE’S WHY…
The biggest factor is that the pool of actual voters has been shrinking steadily, every year: While most companies still report quorums of 80% or more, very often there are 30% or more “Broker Non Votes” in the number - i.e., votes that brokers cast for non-routine items, like the ratification of auditors, but are not allowed to cast for the election of directors - or for Say On Pay ratification - or on shareholder proposals - without specific customer instructions.
The number of BNVs has been creeping steadily higher each year, as individual investors have clearly lost interest in most corporate elections. But even more noticeable has been a slow but steady increase in abstentions - where retail investors either do not have time to study non-routine proposals - or, in many cases, simply don’t give a hoot.
So, bottom line, your 80% quorum often drops to 50-60% of the actual voting power thanks to BNVs and Abstentions…And…hello…when you’re at 50%, a very close 50:50 split on non-routine items is often a near certainty. (If you’re at 60% you are typically in deep doo-doo, since the majority of voters will likely be institutions - who always vote - and who are a lot more likely than retail investors to vote for proposals the company opposes.)
There is another big factor at work these days, and that is what we perceive to be a steady and inexorable shift in retail-shareholder demographics - that bodes ill both for company-sponsored and company-opposed measures: Those old-fashioned Moms and Pops of yesteryear, who used to vote faithfully, and exclusively with management, are fast being supplanted by more modern-thinking folk - all of whom are much more skeptical of big business, much more favorably disposed to ESG issues - and much more skeptical about big Executive Comp too.
So what’s a smart corporate citizen to do these days to ‘prepare for the worst?’
First, of course, is to very carefully try to ‘handicap’ the results as far in advance as possible -and to use experts to help you do it - AND to help you craft your corporate “story” and execute your investor outreach programs successfully. Treating this as a “do it yourself project” rarely produces the results you want to have.
Next, as we’ve said again and again…more often than not, these days, the retail investor vote is your only way, statistically, to turn the tide in your favor. That will take careful planning and messaging - fresh and more creative efforts - and ample time to execute.
Corporate citizens also need to be paying a lot of added attention to who, exactly, is tabulating the vote; how good, and how auditable their systems are - how good they are at helping you track voting, and to spot potentially troublesome trends early on - and allow you to take quick and effective follow-up actions if needed. Most important perhaps, is whether their systems are designed to make it quick and easy for investors - and especially those employee plan and retail folks - to cast their votes.
Last but far from least, corporate citizens need to be paying a lot more attention to their Inspectors of Election these days: Do they have good and well-documented, well-designed systems and procedures in place to “inspect,” double-check and certify the final results? Do they have adequate backup resources at their disposal? Can they, as individuals, stand up to challenges - and respond to them quickly, effectively…and accurately? And, following the P&G fiasco, “Do they know what they are doing…and do they have the methods and the tools to do it right?”