October 12, 2009

Coming Soon: Broadridge’s “Virtual” Annual Meeting

Last Friday, Broadridge filed their proxy statement, which reveals the company’s intention to hold an electronic-only shareholders’ meeting on November 18th. Just a few weeks ago, I blogged about Herman Miller’s similar plans, as well as covered traditional objections to foregoing a physical meeting.

Unlike Herman Miller though (which will allow voting during the meeting via fax only), Broadridge will allow live voting online during the annual meeting (like Intel recently did, as I blogged about in this first-hand report).

As noted on page 8 of its proxy statement, Herman Miller will allow shareholders the ability to ask questions by downloading audio software (after they have submitted their 12-digit control number from their proxy statement) if the question is deemed appropriate. Broadridge’s proxy statement says that shareholders may submit questions while attending the meeting on page 7 of its proxy statement, but its unclear how that work at this early date. The proxy statement says that instructions on how to do so are posted on its IR web page – and Broadridge’s IR web page links to a “stockholder forum” and these instructions about how to participate at the meeting.

It will be interesting to see if there are any shareholder complaints over Broadridge’s virtual meeting. I tend to doubt it considering how well its stock has performed (remember how I told you to buy “BR” a long time ago; I still own plenty of shares and so should you). For companies performing well, the virtual meeting can be a real time-and-money saver – but companies need to ensure that they don’t disenfranchise shareholders and allow real opportunities for them to participate and not get shut out by either a rigorous screening process or a confusing set of hurdles just to get in. As part of this “inclusive” process, I think companies need to post a set of FAQs and other information about how to attend and participate online.

Remember how I’ve been touting the use of an “Annual Meeting Home Page” to better campaign during meetings. This goes double for virtual meetings as part of the effort to explain to shareholders what is going on…

The Rise of ESG Shareholder Proposals

As reflected by the postseason review of ESG (environmental, social, and governance – including climate change) shareholder proposals from RiskMetrics noted below, I think we can expect continued focus on environmental issues by shareholder activists – that eventually will result in the SEC acting on the handful of rulemaking petitions that have been submitted to elicit enhanced disclosure by companies of their environmental and climate change risks, etc.

Given the attention paid to this issue by the SEC’s Investor Advisory Committee and recent remarks by SEC Commissioner Elisse Walter, I wouldn’t be surprised if we saw Corp Fin propose something over the course of next year since the SEC’s environmental regulations haven’t been updated in quite some time. Here is the RiskMetrics ’09 postseason review:

Environmental Proposals Maintain Support
– by Carolyn Mathiasen of RiskMetrics’ Sustainability Solutions Group

During the 2009 proxy season, there was greater support for some types of climate change proposals while investor backing for resolutions on sustainability and political contributions remained strong. The social issues season also was notable for setting a new record for negotiated withdrawals of resolutions, while the Securities and Exchange Commission staff allowed companies to omit fewer proposals this year.

A climate change proposal passed for the first time in 2009. The resolution in question, which got 51.2 percent support, asked utility firm Idacorp to set reduction goals for greenhouse gas emissions. This beat the previous record for a climate change resolution (39.6 percent), set last year at Consol Energy, by more than 11 percentage points, according to RMG data. Two resolutions sponsored by New York City’s pension funds asking for reports on plans to reduce emissions also beat the 2008 record–winning 45.6 percent support at Massey Energy and 42.2 percent at Mirant. A resolution asking Dover to report on climate change challenges to business registered 40.5 percent support.

Support for other climate change proposals was in the 20 percent range, including results at ConocoPhillips, Home Depot, and two resolutions at ExxonMobil. But some other votes were considerably lower. A new resolution at Dominion Resources, which asked the company to provide 80 percent fossil-free electricity generation, got only 4.3 percent support. New proposals from the People for the Ethical Treatment of Animals asking two food companies–Tyson Foods and Hormel–to disclose greenhouse gas emissions from company products got less than 3 percent. PETA has been attempting to draw attention to emissions from factory farming, which recently have become part of the greenhouse gas debate. With these votes dragging down support figures, votes on the 20 proposals relating to climate change and renewable energy averaged 20.7 percent, compared with 23.9 percent in 2008.

Investors continued to give strong support to many proposals asking companies to provide broad-based reports on sustainability issues. After 20 withdrawal agreements, only eight resolutions came to votes during the spring 2009 season and averaged 19.5 percent support, a bit higher than in 2008. The best showing was at Boston Properties, where the resolution earned 37.3 percent support. Conversely, an individual proponent managed only 6.8 percent support at Berkshire Hathaway, and the Unitarian Universalists got 5.4 percent at Las Vegas Sands where Sheldon Adelson owns a majority of the outstanding shares, making it difficult for proponents to make much headway there.

Political Contributions
The campaign coordinated by the Center for Political Accountability to get companies to provide more disclosure on their political contributions and policies held up well in its sixth year. Investors associated with a wide range of proponent groups–public pension funds, labor unions, social investment funds, religious groups and foundations–filed 48 resolutions, the same number as in 2008, of which 29 came to votes. The proposals averaged 29.9 percent, beating last year’s 26 percent tally.

The best showing was 39.8 percent support at Travelers, but three other resolutions also registered 39 percent votes. Votes at the low end of the spectrum were 10.5 percent at Ford Motor and 11.7 percent at Wal-Mart Stores; both companies have high percentages of family ownership.

Banking Practices
The filing deadlines for many resolutions hit in late 2008 just when the financial crisis was deepening, leading shareholders to submit a number of proposals related to that issue. Activists, especially those affiliated with religious groups, had been filing proposals on predatory lending even before the term became widely known, but they took on the issue with new vigor in 2009. Many of those resolutions were later withdrawn after agreements, but three of seven proposals asking companies to evaluate their credit-card marketing and collection practices did come to votes, with varying results. The resolution got 33.4 percent support at Bank of America and 28.4 percent at Citigroup, but only 8.4 percent at JPMorgan Chase. Most corporate recipients argued vigorously, but to no avail, that the issue was not appropriate under Rule 14a-8, the SEC’s shareholder proposal rule.

Health Care
For the second year, the AFL-CIO organized a campaign to get companies to support universal health care–an option that opened up once the SEC staff pulled away from its earlier position that the issue could be omitted as an “ordinary business” matter because it related fundamentally to employee health benefits. The proposal, submitted to 41 companies this year, up from 28 in 2008, asked the companies to adopt an approach to comprehensive health care reform based on principles articulated by a 2004 report from the Institute of Medicine, an arm of the National Academy of Sciences. The principles assert that health care coverage should be universal, continuous, and affordable to individuals and families.

Ultimately, after a number of successful withdrawal agreements, 18 resolutions came to votes. As in the first year of the campaign, the votes were low, averaging 5.4 percent; the final average in 2008 was 4.5 percent. This year’s highest vote (11 percent) was at Honeywell; the lowest vote was 0.4 percent at CBS.

Also faring poorly with investors were animal rights activists, though the proponents say they continue to find the shareholder resolution process an effective way to communicate their concerns to management. Anti-smoking proposals also continued to win meager results, as investors appeared to conclude that the issue was being handled effectively through other channels.

Record Number of Withdrawals
For many activist shareholders, the votes on social issues resolutions are not the central point of proxy season–success in working out withdrawal agreements also has fundamental importance. By this measure, 2009 has been a good year for proponents, with a bumper crop of withdrawals.

As of late August, proponents had withdrawn 143 resolutions (out of 381 filed overall), already cracking the all-time high of 140 registered during all of 2008, according to RiskMetrics data. A few of the withdrawals came about because proponents realized that they were going to lose corporate challenges at the SEC, but most involved at least some concessions from companies. At the same time, though, some proponents were more willing than in recent years to accept withdrawal agreements in return for companies’ expressions of concern about the issue they were raising, rather than demanding substantive changes. A major exception was one of the most active proponents, New York City, which continued to insist that companies commit fully to the requests in their proposals before agreeing to withdraw.

The leading issue by number of withdrawals in 2009 involved the New York City-led campaign asking companies to amend their Equal Employment Opportunity statements to outlaw discrimination on grounds of sexual orientation and gender identity. Proponents withdrew 22 proposals after companies agreed to the requests or revealed that they already had such policies; in some cases this merely involved changing EEO statements that already outlawed discrimination against homosexuals to add gender identity, an increasing concern of activists.

The nine anti-discrimination resolutions that appeared on ballots pulled in some of the highest votes of the year. A proposal passed at D.R. Horton, and the resolutions overall averaged 30.5 percent support. By contrast, the issue with the next highest number of withdrawals got some of the lowest votes–proponents, led by the AFL-CIO, were able to withdraw 22 proposals in the second-year campaign asking companies to endorse universal health coverage. Many institutional investors were not comfortable with the wording of the proposal, but companies themselves have been increasingly willing to issue statements in support of universal health care.

Other issues with high numbers of withdrawals included sustainability reporting, traditionally a good negotiation target, with 20. Proponents who were part of the campaign to get companies to disclose their political contributions were able to withdraw 15 resolutions, although that was down from 20 in 2008, which had seen a similarly sized effort.

The number of withdrawals on climate change fell noticeably to 12 from 21 in 2008. The 12 included five of six in a campaign by the California State Teachers Employees’ Retirement System, which has been newly active on the issue. In the banking category, shareholders withdrew all four new resolutions asking for a loan servicing policy that would “remedy borrowers for past predatory loan practices”; the withdrawals came after what proponents termed “productive dialogues.” Resolutions raising a range of product safety issues, which have been increasing since the debut of the Investors’ Environmental Health Network four years ago, have been relatively amenable to withdrawal, and IEHN members withdrew nine of the 16 proposals they submitted for 2009.

No-Action Rulings
As of late August, the SEC allowed companies to exclude 48 proposals that raised social issues, making it unlikely that omission totals for 2009 will reach the mid-60s’ levels of recent years. None of the staff’s 2009 no-action decisions appeared to set precedents that would make it harder for activists to get their proposals in proxy statements next year.

Seven of the omissions came about because of technical glitches in the filings, but the rest occurred because the SEC staff concluded that the resolutions fell under one of the 13 substantive reasons for exclusion under Rule 14a-8. As usual, the “ordinary business” exclusion accounted for the lion’s share of the omissions, knocking out 23 proposals.

Notably, the ordinary business exclusion claimed most of the proposals in the biggest new campaign of the proxy season, which was organized by the Open Media and Information Companies Initiative, known as “Open MIC.” The SEC staff allowed companies to omit proposals asking companies to report on the effects of their Internet network management practices on the “public’s expectations of privacy and freedom of expression on the Internet.” The institutions sponsoring the resolutions, including the New York City funds and social investment groups, say they will try again next year with new phrasing.

In other ordinary business decisions, the agency staff continued its June 2005 policy of allowing companies to omit proposals that it determines involve “an internal assessment of the risks or liabilities that the company faces as a result of its operations that may adversely affect the environment or the public’s health.” In 2008, the staff had decided that New York City’s standard climate change proposal asking companies to report on how they are “responding to rising regulatory, competitive, and public pressure to significantly reduce carbon dioxide emissions” was vulnerable under that policy. For 2009, the city revised the wording of the resolution to emphasize reducing “social and environmental harm” from emissions, but the SEC staff concluded that the proposal still concerned ordinary business, allowing it to be omitted at the two companies (Consol Energy and Alpha Natural Resources) that challenged.

The classification of risk assessment as ordinary business had been strongly criticized by a large coalition of shareholder activists in a December 2008, letter to the SEC. At the time, the letter’s primary author, attorney Sanford Lewis, acknowledged to RMG that it came too late to produce action that would affect the 2009 proxy season, but he said the letter’s signatories hoped that it would discourage the SEC “from doing any more damage on this issue in 2009.” Activists are likely to intensify their push to change this SEC policy before the 2010 season.

Editor’s Note: All the vote results in this section are based on the votes cast “for” and “against” and don’t include abstentions or broker votes.

Paying the Fraudster’s Attorney Fees: Good Use of Shareholder’s Money?

Kevin LaCroix indirectly gives us a reminder in his “D&O Diary” Blog today to review your D&O insurance policies and indemnification arrangements to attempt to prevent out-and-out fraudsters from draining corporate resources by enabling them to have their attorney fees paid for while defending themselves.

Kevin blogs about how Stanford Allen likely will get his fees paid for, while 60 others from Stanford Financial also fight to have their attorney fees covered…

– Broc Romanek