Every year around this time we remind readers that they should get an extra-early “jump” on planning for their Annual Meeting. And we offer our top-three tips on avoiding unexpected - and unwanted - and career-threatening meeting outcomes. Here they are:
Never be lulled into complacency by “statistics” that indicate, for example, that 95% of all directors - and/or Say-On-Pay proposals - got 95% favorable votes on average: The only statistic that should count, from your perspective, is HOW YOUR OWN COMPANY IS LIKELY TO FARE!
Never start your planning by marking up last year’s “playbook”: Begin by rigorously assessing every area of vulnerability to potential voter “backlash” that you can think of - including potential vulnerabilities of all your directors - at any and all boards they may be serving on, or where they may have served in the past.
Resolve to closely monitor the voting from the very first votes that come in: If something seems amiss, it will take TIME to get things on track - say with a special mailing or some other special “outreach efforts” - and “time is of the essence” here.
But this year - as we ourselves “smell the coffee” - there are some major shifts in investor sentiment that warrant extra attention:
In the first six months of 2019, 478 public company directors failed to achieve a majority of the shares voted - up a whopping 39% from 2015, according to Broadridge’s Proxy Pulse report on 4,000 U.S. companies that had meetings between Jan. 1 and June 30, 2019. Yes, this was only a tiny fraction of the 22,520 directors who stood for re-election, 95% of whom, indeed, got 95% Yes-votes…But if any of the losers are on YOUR board….prepare yourself for a major fall from grace.
There were 1,726 directors who achieved less than 70% support - which, we can assure you, did not make any of them happy with the company efforts on their behalf. And each year, we see a half-dozen or so directors who are not in these numbers, because they step-down before the meeting, rather than suffer the embarrassment of a low, or worse, a failing vote…and we bet there are a lot more. Not a career-builder for you, for sure!
Another startling statistic from the Proxy Pulse report, Votes-No against directors at the 500 largest U.S. companies are rising at a much faster than average rate: In 2019, 50 large-company directors failed to win a majority vs. only 15 in 2015. For 2020, we are betting that there will be even more cases where investors will decide to make much stronger statements by singling out much bigger targets.
Very important to note this year, virtually every large investment firm - and all of the proxy advisory firms too - have tightened up their guidelines to Vote-No on directors who, in their view, have failed to “engage” - and to take action on areas of concern to them - like calls for boards that are more diverse in terms of gender and ethnicity, age and board tenure - and areas of specific director expertise…or who have otherwise “fallen short” in their view: The prime candidates for votes-No are members of the Governance or Nominating committees - or of the Audit committee if there have been any audit or ‘reporting issues’ - on the Comp-committee if there have been “performance issues” or if pay-for-performance looks weakly-structured to them - and sometimes against the Chairperson, to hammer home a point or two with a big bang.
Voter-support support for ESG proposals reached many all-time highs in 2019: With proposals to eliminate super-majority voting at 65.4%, adopt majority voting at 43.4% - and to make it easier for shareholders to call special meetings (43.9%) and to act by written consent (39.4%). Social proposals also scored big, with proposals on lobbying, political contributions and human rights scoring in the low 30%s and 14 proposals on employment diversity coming in at 38.6% on average, with two of them passing. On the environmental proposal scene - where activist investors are looking to up the ante big time this year by pressuring the biggest U.S. investors - climate change issues got 31% support, sustainability reporting averaged 28.6% support and proposals re: recycling “PLASTICS” - a newly hot issue - averaged 28.5% support.
The voting scales promises to tip even further in favor of activist proposals in 2020, as the usually pro-management retail investor vote continues to decline, year after year…
And this year, a new worry: According to a recent poll by deVere Group, one of the world’s largest independent financial services and advisory organizations, almost eight out of 10 millennials now prioritize “socially responsible and impactful” investing: Some 77% of millennials - people who were born in the time period ranging from the early 1980s to the mid-1990s and early 2000s – cite Environmental, Social and Governance (ESG) investing as their top priority when considering investment opportunities. Very serious food for thought when deciding whether to recommend votes-No on ESG proposals, or to seek a middle-ground instead.
So NOW, we say. Is the time to do the math - and to very carefully handicap the odds that the votes on one or more of your directors - or on one or more of the proposals on your ballot - will not go the way you want them to go…and then - if you decide not to seek some compromises - to buckle down early - and to work hard to improve the odds in your favor.
Here’s our three-step process:
Step-one is to be sure you completely understand the numbers behind your own shareholder demographics: how many shares are owned by active and by passive institutional investors, by retail investors - both of-record and in street name, where many companies get their math all wrong - in employee ownership plans, which very often can be as high as 10% of the outstanding shares - and ooops…by officers and directors, who often own a double-digit percentage of the total shares outstanding but forget to VOTE their shares without some special prodding.
Step-two is to look closely at last year’s numbers: So many companies are so happy to have a quorum of 80% or better that they fail to note that 30% or more of the total numbers come from “broker non-votes” - i.e. votes that can be cast for “routine proposals” but can not be cast for directors and other non-routine proposals unless the owners themselves take the steps to do so…Often, 30% or more of the votes cast ‘for quorum’ are broker non-votes - and as a result, with an 80% quorum, this leaves 50% of the votes cast by actual voters “up for grabs” - which greatly increases the odds of a 50:50 split between voters who are “friendly” to management and those who are not-so-friendly on some matters on the ballot.
Thus, step-three should be to have a plan to systematically round up the votes from your “friendlies”: Officers and Directors should be a slam dunk. Smart companies, as we have reported before in detail, have been able to improve friendly retail investor voting by up to 50% - with good marketing, packaging, outreach and reward programs. Employee Plan owners require a bit more work - and work that has to be done early in the game…
Readers: It is a surprisingly easy thing to improve your number of actual VOTERS by five percentage points or better, and thus to turn a 50:50 proposition into a 55-45% vote in your favor if you start early, follow-up early to prod the laggards, and to simply WORK HARDER - and SMARTER on getting out the vote. Here’s to a successful meeting season in 2020!
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