For Starters, Please Note That On Proxy Voting Matters… “Eighty Is The New Fifty”
Once upon a time, if a shareholder proposal got even the tiniest tad over 50% of the votes-cast AGAINST it, companies would declare victory and move on with alacrity.
As to votes on directors, companies that had a plurality standard didn’t pay much heed at all to the Withheld votes, since a single vote FOR was all it took to get elected. Even companies with a majority election standard – which will soon be the overwhelming majority of all companies – paid little attention to the votes NO… unless they crept over 20% for a given director.
These days, however, we say that eighty percent in favor of a company proposal – or against a shareholder proposal – is the absolute minimum amount you need to see. And even then, it’s no longer safe to rest easy: A 20% vote against your Say On Pay - or against a given director - or against anything you favor - or in support of a shareholder proposal you do not favor – should trigger alarm bells at your company, along with a clear-cut plan to assess the sources of discontent, identify and reach- out to important allies – as well as to the “dissident voters” – with a goal of doing better – and not worse – come the next election.
If you do nothing, the chances of doing much worse in 2012 are becoming way too big to risk: Many activist investors are saying they’re ticked-off about the way Says On Pay sailed by…and are looking to use high Votes-No – on ANY company- supported item – as a screen to trigger higher scrutiny in 2012…and a higher level of calls to Vote NO…not just on pay, but on a wide variety of matters. One can expect the proxy advisory firms to raise the ante in similar fashion.
Several thoughtful leaders - including the Society of Corporate Secretaries and Governance Professionals president Ken Bertsch - have called attention to the very large number of companies whose Says On Pay passed…but with scanty – and we say scary margins – and also to the large number of such companies that actually got OKs from the proxy advisory firms: Roughly 300 companies had Yes votes between 51% and 80% despite a “pass” from ISS. Results like these clearly indicate that there are significant “pockets of discontent” that smart companies will want to investigate and address with vigor before the 2011 season kicks in.
A hot new topic these days – both in the corporate and activist investor communities – is the level of Says-No that ought to trigger a specific, written response from management, or from the Compensation or Governance Committee in the 2012 proxy statement on their own assessment, and on what, if anything they have done in response. In the just- released annual ISS survey on governance issues, half of the investor respondents said that a 20% level of opposition should trigger a written response, while – no big surprise – only 13% of issuers said the same.
Whether or not you decide to address low levels of voting support in your proxy statement or, much better, we think, in one-on-one conversations with the naysayers, it really does seem that a 20% Vote No on anything you support – as well as a 20% Yes vote on anything you do not support – ought to be the number that rings the alarm bell.
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