It looks like shareholder activists are increasingly getting
their way with companies, or at least convincing management
that if they dont compromise they could wind up paying a
steeper price down the road.
A number of recent corporate governance developments suggest
that activists are starting to gain the upper hand, and
companies are reacting by changing policies or proposing
alternatives even when they are not required to.
These trends are playing out in the proxy access and
The latest example: Hewlett-Packard reportedly agreed to put
a proxy access bylaw proposal on its ballot in 2013 after
reaching a settlement with Amalgamated Bank, a long-time
activist investor which had filed a nonbinding proposal for the
companys March 2012 meeting. Under HPs proposal,
shareholders who own at least 3 percent of the tech
companys stock for at least three years would be allowed
to nominate up to 20 percent of the companys directors,
according to The Wall Street Journal, which
stressed the vote would be binding.
Amalgamated Banks LongView Fund had planned to submit
a nonbinding proposal at HPs March 2012 annual meeting
that presumably would have made it even easier for shareholders
to nominate directors.
we reported that Western Union and KSW, a microcap heating
and ventilating company, submitted No-Action Letters to the SEC
Staff seeking to exclude proxy access shareholder proposals so
they could submit their own plans to prevent a softer proposal
from being voted upon.
Keep in mind that over the years as the proxy access issue
has played out at the Securities and Exchange Commission and in
the courts, the corporate community has been fiercely fighting
the right for shareholders to nominate directors under any
circumstance. The fact that several companies are willing to
compromise and trot out their own plans is significant.
Management finally realizes the vote has
meaning, says Charles Elson, corporate governance expert
at the University of Delaware. The threat to replace is
At the same time, companies are starting to respond to low
support in say-on-pay votes. Thanks to the Dodd-Frank bill,
shareholders at annual meetings can now express support or
dissatisfaction with the overall pay of the named executives in
the proxy, although they are not binding.
Through September 25, 2011 only about 38 of the 2,746
companies with annual meeting results that included say-on-pay
votes failed to receive majority shareholder support for their
say-on-pay votes at last years annual meetings, according
to the law firm Foley & Lardner.
As it turns out, the two companies that received the most
opposition Beazer Homes and Jacobs Engineering
went back and significantly changed the compensation deals with
their named executives in time for the 2012 annual meetings,
even though they were not required to.
The result: this time around they each recently received
around 95 percent approval for their pay packages. So in the
end, investor pressure through say-on-pay resulted in
According to Ted Allen, who writes a corporate governance
blog for ISS, Jacobs cut its time-based stock awards, decreased
the ratio of stock options and aggressively revamped its stock
holding requirement. Whats more, total CEO compensation
fell 17.6 percent.
Beazer eliminated time-vesting restricted stock, changed its
pay-for-performance hurdles and overall made its severance
programs more shareholder-friendly, Allen points out.
Meanwhile, Allen notes that Monsanto, which received 65
percent support for its pay package in 2011, sought feedback
from the 50 largest shareowners that voted against its pay
Companies are certainly paying attention to the votes
even though they are nonbinding, Allen says.
Say-on-pay is encouraging engagement between companies
He adds that other companies took steps in 2009 and 2010
when say-on-pay was a nascent movement.
Although proxy access and say-on-pay are different kinds of
issues, it has not escaped governance experts that companies
are more sensitive these days to activists, who are more
aggressive, savvier and in some cases better financed than they
were years ago. In addition, these days the serial gadflies are
also taken more seriously these days, unlike several decades
ago when they mostly seemed like eccentric kooks.
It would not be an over-characterization to say these
are examples of greater efforts by management to address
shareholder concerns, says Allen.
Adds Elson, You have a reality of shareholder
democracy coming into being and companies recognize