2016 has been a banner year for shareholders
seeking access to corporate boardrooms. Proxy access is becoming a more established practice, with many large U.S. companies having adopted a now-standard 3%/3-years provision prior to and during the 2016 proxy season. Further, shareholder proposals on the topic received over 51% average support in 2016, indicating significant shareholder demand for the creation of these provisions.
While over the past year attention has turned to some of the finer details of proxy access provisions, such as the use of loaned shares or approval thresholds for candidate resubmission, the vote outcomes for management proposals adopting proxy access suggest that investors are largely content to follow management’s lead regarding these ancillary features. This reflects a broader trend in 2016: corporate boards are engaging with their shareholders more than ever before, and becoming more adept at incorporating shareholder feedback into their policies and disclosure.
Activist investors such as Jeffrey Smith and Carl Icahn continued to make inroads in 2016 and boards are increasingly aware of influential shareholder groups, as evidenced by more engagement, improved disclosure, and a renewed focus on board composition. The amicable endings to threatened proxy contests at Yahoo and Xerox exemplify that many boards are open to constructive dialogue. Even Vornado Realty Trust, which has historically drawn ire for flatly ignoring majority shareholder votes, made strides in 2016 in amending its corporate governance policies following investor outreach.
Engagement also remains key for large U.S. banks seeking approval of sizeable executive pay packages. JPMorgan Chase & Co., which had redesigned CEO Jamie Dimon’s equity compensation in response to shareholder input, garnered over 91% support for its 2016 say-on-pay following two years of lukewarm support for the firm’s pay packages. Mr. Dimon further espoused his commitment to constructive engagement as a signatory of the Commonsense Corporate Governance Principles in July 2016, which cites engagement as a necessary component of effective governance.
Other notable trends to emerge in 2016 include record levels of support for shareholder proposals concerning gender pay equity and climate change-related risks; a focus on executive pay program adjustments, which was of particular concern within the energy sector; and continued scrutiny by shareholders of one-time awards, including sign-on and retention grants.
Our 2016 review examines a number of Case Studies from the 2016 proxy season that illustrate the issues that investors and companies faced, and what both parties can learn from them, including:
- Chipotle Mexican Grill, Inc. – With competing proxy access proposals on the menu, Chipotle shareholders have repeatedly found the company’s 5% proxy access rule hard to digest.
- Yahoo! Inc. – Facing a proxy contest from activist investor Jeffrey Smith and his Starboard Value hedge fun, the Yahoo board settled on a cooperative approach to unlocking the value of its substantial stake in Chinese online retailer Alibaba.
- Vornado Realty Trust –After years of inaction following majority-approved proposals and against votes for directors, Vornado reversed course by engaging with shareholders and proposing favorable amendments to its governance.
- eBay Inc – Shareholders made a bid for gender pay equity, approving a shareholder proposal requesting a report on eBay’s policies and goals to reduce the gender pay gap.
- JPMorgan Chase & Co. – This big bank is back in shareholders’ good graces following favorable changes to its pay program and Jamie Dimon’s (partial) embrace of commonsense corporate governance.
- Goldman Sachs – Shareholders of this big bank balked at payouts under a largely discretionary pay program.
- Chevron & Exxon Mobil – These two oil majors’ compensation committees had distinctly different responses to a macroeconomic downturn, with distinctly different voting outcomes.
- Power Corp., Canadian Tire and Couche-Tard – With shareholder groups and corporate governance organizations like the Canadian Coalition for Good Governance continuing to advocate for the compulsory adoption of say-on-pay in Canada, the practice is catching on—but slowly, and particularly so at companies with a controlling shareholder.
- Canadian Pacific Railway – Will the company’s treatment of “make-whole” payments to an Ackman-installed CEO derail the company’s executive pay program?
Also included: Allergan, General Growth Properties, McDonald’s, Xerox
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Glass Lewis’ season reviews provide market-specific overviews of the key developments in governance, shareholder activism and stewardship, executive compensation and ESG that defined the 2016 proxy season, along with in-depth case studies detailing how these issues played out in practice.