On Monday, the SEC announced that John Coates has been appointed Acting Director of Corp Fin. He has been the John F. Cogan Professor of Law and Economics at Harvard University, where he also served as Vice Dean for Finance and Strategic Initiatives. If that name sounds familiar—even if you haven’t been one of his students—it may be because he sometimes pops up in Matt Levine’s column in Bloomberg as the author of “The Problem of Twelve,” which he describes as the “likelihood that in the near future roughly twelve individuals will have practical power over the majority of U.S. public companies.” Beyond that, he has been a very active member of the SEC’s Investor Advisory Committee, and Committee recommendations he has authored may give us some insight on his perspective on issues.
Thanks to thecorporatecounsel.net for catching this announcement from NYC Comptroller Scott Stringer and the NYC Retirement Systems, which reported that, since the inception of the Comptroller’s “Boardroom Accountability Project,” there has been a 10,000% increase in the number of companies with proxy access. Stringer began the Project in 2014 with proxy access proposals submitted to 75 companies. At the time, Stringer viewed the campaign as having been “enormously successful: two-thirds of the proposals that went to a vote received majority support and 37 of the companies have agreed to enact viable bylaws to date.” (See this PubCo post and this PubCo post.) So effective was the proxy access campaign that Stringer leveraged its success and the “powerful tool” it represented to “demand change” through the Boardroom Accountability Project 2.0, focused on corporate board diversity, independence and climate expertise. Now, five years later, the number of companies with “meaningful” proxy access has climbed from just six in 2014 to over 600—including over 71% of the S&P 500—all as a consequence, Stringer contends, of the Boardroom Accountability Project. But, you say, proxy access has hardly ever been used (see this PubCo post), so what difference it make? In Stringer’s view, it makes a big difference.
When we last left the saga of proxy access, we had just started a new chapter on so-called “fix-it” shareholder proposals—efforts to revise existing proxy access bylaws to make them more “shareholder-friendly.” You might recall that, in 2016 and 2017, John Chevedden et al. submitted a slew of fix-it proposals that requested amendments to proxy access bylaws to raise the cap on the number of shareholders that could aggregate their shares to reach the necessary 3% ownership level. Target companies, in turn, submitted no-action requests seeking to exclude those proposals on the basis that they had already been “substantially implemented” under Rule 14a-8(i)(10). In response to the requests for relief, the SEC staff took a uniform no-action position allowing exclusion of these fix-it proposals. But the proponents were persistent and, in 2017, submitted to H&R Block a different formulation of a fix-it proposal that requested only one change — elimination of the cap on shareholder aggregation to achieve the 3% eligibility threshold, as opposed to simply raising the cap to a higher number. This time, the staff rejected H&R Block’s no-action request. In essence, it appears that the staff believes that a lower cap on aggregation could “substantially implement” a higher cap, but the removal of a cap entirely is a different animal that could not be substantially implemented by the lower cap. (For more history on these fix-it proposals, see this PubCo post.) This proxy season, the proponents have latched onto—and even expanded—the new formulation and have continued to find success in preventing exclusion.
In 2014, NYC Comptroller Scott Stringer, who oversees the NYC pension funds, submitted proxy access proposals to 75 companies—and ignited the push for proxy access at public companies across the U.S. The form of proxy access proposed in this first phase of the Boardroom Accountability Project was very similar to the form of proxy access mandated under the SEC’s rules that were overturned in 2011, requiring an eligibility threshold of 3% ownership for three years, with shareholders having the right to nominate up to 25% of the board. (See this PubCo post and this PubCo post.) It has been reported that, of the 75 proposals submitted by the NYC comptroller in 2014, 63 went to a vote, with average support of 56% and 41 receiving majority support. In 2015, Stringer submitted more proxy access proposals. Notably, until Stringer’s initiative, private ordering for proxy access had not gathered much steam; only six companies had adopted proxy access. Stringer’s office reports that, today, more than 425 companies, including over 60% of the S&P 500, have enacted proxy access bylaws. Now, the NYC Comptroller’s Office, leveraging the success of its proxy access campaign and the “powerful tool” it represents to “demand change,” has announced the Boardroom Accountability Project 2.0, which will focus on corporate board diversity, independence and climate expertise. Will Project 2.0 have an impact comparable to that of the drive for proxy access?
As proxy access bylaws have continued to proliferate—with 60% of the S&P 500 now having adopted some form of proxy access provisions—the Council of Institutional Investors has decided that the time is right to update its 2015 best practices guide. In particular, the 2017 update addresses practices that, while viewed by companies as designed to ensure the legitimate and appropriate use of proxy access, are viewed by CII as impairing the ability of shareholders to use proxy access. But will companies be guided by CII’s advice?
Framework developed by the Investor Stewardship Group establishes common set of investor expectations for corporate governance
The Investor Stewardship Group—a group of the largest, most prominent institutional investors and global asset managers investing, in the aggregate, over $20 trillion in the U.S. equity markets—has developed the Framework for U.S. Stewardship and Governance, a “framework of basic standards of investment stewardship and corporate governance for U.S. institutional investor and boardroom conduct.” The stewardship framework identifies fundamental responsibilities for institutional investors, and the corporate governance framework identifies six fundamental principles that “are designed to establish a foundational set of investor expectations about corporate governance practices in U.S. public companies. Generally, the principles “reflect the common corporate governance beliefs embedded in each member’s proxy voting and engagement guidelines,” although each ISG member may differ somewhat on specifics. The ISG encourages company directors to apply these basic principles—while acknowledging that they are not designed to be “prescriptive or comprehensive” and can be applied in various ways—and indicates that it will “evaluate companies’ alignment with these principles, as well as any discussion of alternative approaches that directors maintain are in a company’s best interests.” The framework does not go “into effect” until January 1, 2018, so that companies will have “time to adjust to these standards in advance of the 2018 proxy season,” the implication being that failure to “comply or explain” by that point could ultimately lead to shareholder opposition during proxy season. Check out the countdown clock at the link above!
by Cydney Posner A draft of the Financial CHOICE Act of 2017 (fka version 2.0), a bill to create hope and opportunity for investors, consumers, and entrepreneurs — a masterpiece of acronyming — has just been released (and weighs in at 593 pages). The bill, sponsored by Jeb Hensarling, Chair […]
by Cydney Posner The SEC has posted a number of additional Corp Fin responses to requests for no-action, as well as to requests for reconsideration of previous denials of relief, regarding shareholder proposals to amend proxy access bylaws, so-called “fix-it” proposals. In all cases, the companies argued that they should […]
by Cydney Posner Corp Fin has refined its position with regard to exclusion of proposals to amend existing proxy access bylaws. However, the basis for the staff’s determination to grant or refuse no-action relief in that context remains a conundrum.
by Cydney Posner Corp Fin has refined its position with regard to exclusion of proposals to amend existing proxy access bylaws. As you may recall, the line drawn so far by Corp Fin has been that, where the shareholder proposal related to initial adoption of proxy access, Corp Fin has continued to […]