On the heels of Occupy Wall Street, heated debates regarding regulations on political spending in the United States, and a European directive concerning board gender diversity, the 2013 proxy season was poised to be defined by vocal shareholders holding companies accountable for recent missteps. However, that scenario never came to be; the 2013 proxy season did not result in a “shareholder spring,” and in fact was (relatively speaking) free of excessive drama and fireworks. Perhaps this reality came to be as a result of improved market conditions, or as a result of better corporate performance, or perhaps due to improved disclosure and transparency. Regardless of the reason, average support for most shareholder initiatives continued to decrease, as it has over the last several years. For example, after a heated, public debate regarding the merits of appointing an independent chairman of the board at JPMorgan Chase & Co., support for the initiative decreased significantly relative to 2012. Support for another shareholder proposal requesting that Urban Outfitters consider women and minorities similarly decreased after the firm appointed a female – even though she was a long-tenured employee of the company and also happened to be the wife of the president, CEO, chairman and co-founder of the firm. Unsurprisingly, the proponents of the shareholder proposal called this a “cynical,” insulting and “bogus” move, considering investors concerns regarding board independence. Still, despite the uproar, shareholder support for the initiative fell year-over-year.
While shareholder support for many initiatives decreased over the past year, support rose for a certain environmental and social issues. For example, in 2012, only one proposal regarding environmental or social issues received majority support (a proposal requesting disclosure of Wellcare Health Plans’ political spending). However, in 2013 three such proposals received majority support. Then again, it should be noted that all three of these proposals (which requested a sustainability report, political contributions disclosure and consideration for board gender diversity when nominating new directors) were proposed and approved by shareholders at one company: CF Industries Holdings, Inc.
There has also been a continued push for better disclosure of corporate political spending in the U.S.; for the third year in a row, shareholder proposals requesting increased disclosure on companies’ lobbying activities and political contributions were the most frequent proposal reviewed by Glass Lewis. Prior to 2011, governance issues such as declassification of the board or the adoption of a majority voting standard were the most commonly submitted proposals. However, in the past several years proposals related to social issues have shoved their way to the forefront, as investors are increasingly focusing on potential reputational risks, such as those associated with companies’ political involvement. In response, we have noted widespread, rapidly improving disclosure on this issue. Likely as a result of companies’ responsiveness and improved transparency, average shareholder support for these proposals has declined year-over-year.
In Japan, investors appear to be increasingly pushing for more Western governance provisions. Following a number of corporate scandals at companies such as Mizuho Financial, Tokyo Electric Power Company and Dayo Paper, shareholder support for measures such as board independence and disclosure of compensation has been increasing. However, while these issues have received growing and significant shareholder support in 2013, other proposals in Japan did not fare as well, with average support for all shareholder proposals declining in 2013.
Globally, there appears to be a growing interest in board gender diversity. As previously mentioned, a shareholder proposal in the United States requesting that CF Industries Holdings ensure that women and minorities are considered when evaluating potential director nominees received majority shareholder support. In Canada, the majority of environmental and social initiatives focused on increasing the proportion of female senior executives and board members. In Europe, an individual shareholder took a traditionally American approach to shareholder activism by placing similar proposals requesting the adoption of a gender diversity quota at a number of Swedish companies. This movement toward gender diversity is unsurprising, particularly given directives from the EU regarding mandated board gender diversity, a growing body of empirical research finding a link between corporate performance and board diversity and a significant push from investors for companies to ensure that they are sufficiently managing this issue. Even Japan, which has relatively low levels of board gender diversity, has recently taken steps to ensure more female board representation. In April 2013, the Tokyo Stock Exchange announced a revision to its Corporate Governance Report manual whereby it suggested that listed companies disclose information regarding the current status or future plans to ensure that women serve as executives and directors. Following this announcement, Prime Minister Abe urged companies to promote more women to executive roles by requesting that business leaders set a target of appointing at least one female executive at each company. Although this issue has not yet been advocated by Japanese shareholder activists, given the focus on this issue in other markets Japanese companies may soon face investors looking to ensure that corporations are sufficiently addressing board diversity.
The overall decreased support for many shareholder initiatives in 2013 could have a variety of explanations. It is possible that improved market conditions have distracted investors from pushing for better governance structures and provisions. However, it is also possible that the adoption of many of these provisions and structures has resulted in less of a need for shareholder activism. For example, according to the 2012 Spencer Stuart Board Index, 83% of companies in the S&P 500 have a declassified board structure and 84% have adopted majority voting in director elections. Beyond adoption of better governance practices and disclosure, it is also possible that the increased support for shareholder initiatives is a result of a growing movement toward corporate engagement. Oftentimes direct engagement between investors and companies is a much more straightforward, effective and ultimately fruitful method of effecting corporate change. However, as the vast majority of these engagements are confidential, it is difficult to measure the magnitude or effect of this movement on broader governance trends.
The role and importance of good corporate governance is becoming increasingly apparent to a variety of investors. One of the primary mechanisms by which investors can have a voice in the governance of a given company is through the submission of, and their votes on, shareholder proposals. Glass Lewis’ 2013 Season Review: Shareholder Proposals examines the shareholder proposals put forth in the United States, Europe, Canada and Japan during the 2013 proxy season. In this report, we discuss trends in investor support and emerging topics in social, environmental, governance and compensation-related shareholder activism is also presented in this review of how investors shaped the course of the last proxy season through their submission of and votes on shareholder proposals.
Glass Lewis clients can access this report at GlassLewis.net, or they can contact their Client Services Manager.
All others who wish to view the report can send a request to purchase the report via info@glasslewis.com.