Great news for public companies, though bad news for most proxy solicitors, the 2011 Proxy Season seems to be shaping up as the least contentious one in a decade or more:
Early returns indicate that the number of shareholder proposals – and management proposals too – will be down significantly. And this after a big downturn in 2010 – due in large part to the number of companies that have basically gotten the message about “good governance” and which now have pretty good governance practices in place..
Says-on-pay will largely sail by with decent margins, if we can believe all the usually-activist investors we’ve heard at meetings and webcasts this year, and elsewhere in this issue, which we think we can.
Compensation proposals will be down big-time for sure – partly because corporations have fixed most of the areas where they were most vulnerable to shareholder proposals – and partly because they are not about to tempt fate with proposals of their own that require shareholder approval…And if they do, they’ll do their homework.
But as we always warn, the only company that you have to worry about is your own…and there are still some hot issues out there – along with some worrisome straws in the wind:
A large group of social investors – like Walden Asset Management, Domini Social Investment , Green Century Balanced fund and a host of Catholic orders – has targeted companies that sit on the Board of the Chamber of Commerce with resolutions asking Independent Directors for a “Review and disclosure of any direct and indirect expenditures supporting or opposing candidates, or for issue ads designed to affect political races, including dues and special payments made to trade associations, such as the U.S. Chamber of Commerce…or other organizations that can hide any contributions…” We think that the topic of political contributions – whether made by companies, trade associations, labor unions or other special interest groups – will resonate big with voters this year…witness the disillusionment with government in general we’re seeing…and may generate a lot more votes – and much more noise than usual at 2011 shareholder meetings.
Calpers has targeted 58 of its largest portfolio companies that don’t have a majority standard for Director elections…and while so far, at least 20 “have done the right thing” by agreeing to change, they say, they’ve filed proposals at Apple, BB&T Corp, Capital Management Inc. and VF Corp….and will likely file more.
Calsters, which in 2010 filed NO proposals, will file 25 this year – mostly at small companies – calling for a majority voting standard. We say these proposals will draw big yes votes…and we bet a majority will pass.
A bit scarier, perhaps, Calpers says they’ve changed the way they decide on companies to focus on…to put much more weight on short-term financial performance “that will be more reactive to market developments”…and to focus on their top 500 companies rather than the top 1000… and to drop governance issues from their initial screening entirely! But once you’re on their radar screen, they will place a “greater emphasis on board quality, skill sets and diversity”…So look for a few totally unexpected, last minute developments at meetings – and much bigger numbers for Calpers proposals we predict – thanks to a smaller and more carefully selected universe of targeted companies.
Stay especially alert for both formal and ad-hoc Vote-No campaigns against Directors we advise: In 2010 we saw more Directors with Votes No and Withhold Votes in the 30% – 48% range than we’ve seen in total…in 40+ years of watching. Often, it’s hard to figure out what, exactly, triggered the big NO votes…We think that many of the same factors that are affecting attitudes toward the governmental sector are at work here too. If you smell trouble, ramp up your efforts to get out the normally promanagement individual investor and employee plan votes. At a minimum, make sure that no director gets surprised in the 11th hour.
One new flash point, where savvy corporate citizens are already doing damage control, we hope, are “relocation subsidies” for new or moved execs: We can see why it would be a “hot button” for all the ordinary investors with underwater real estate, but we have a hard time seeing why such payments – including outright buyouts of the old homes to forestall big monetary losses – are NOT warranted given the rotten housing market – where a company believes the relocation will produce better results for the business as a whole.
It looks as if the number of proposals to lower the threshold for calling a special shareholder meeting will be down a bit this year, which is a good thing. We think that companies should push back harder on proposals that seek to lower the threshold to a mere 10% and give shareholders a better idea of the extent to which low thresholds simply encourage mischief-makers to waste the valuable time and money of serious long-term investors.
Another relatively new development – and a bad one, we say – are proposals that would allow investors to take action by written consent: Twenty years or so ago – when consent solicitations to oust the board were being used routinely as a powerful extra “club” in bear-hugs and other lowball tender offers – the trend was to eliminate the right to act by written consent, which was a good thing for most investors, we think. And such attempts were quite successful, back in the days of frequent “shark attacks.” Consent solicitations are like a “nuclear action”: They can be launched quickly and inexpensively – and with no warning at all: No need to wait for an annual meeting. And they tend to be unusually “dirty” bombs too – where pointed attacks on the character, reputation and performance of the incumbent directors, along with any and all juicy tidbits that can be dredged up – are standard operating procedures. And, of course, the outcome is final…and effective immediately.
Scariest of all, however, the right to act by written consent is like giving a blank check to any malcontent that comes along…with almost any proposal that strikes his or her fancy. (Wow! The last time we wrote about this was in December of 1999, when we counted nine mostly successful consent situations in a matter of months… including companies like Birmingham Steel & the Pfizer/ Warner Lambert/American Home Products deals. We also ran a special supplement on Consent Solicitations – and potential defense measures, written by our good friend Merrill Stone, Esq. of Kelly Drye & Warren. Call or email us if you’d like copies, to bone up on the issues here.)
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