October 12, 2018

Proxy Advisors: Survey of Corporate Views

For the last four years, the US Chamber of Commerce & Nasdaq have partnered to survey corporate views of proxy advisors. The latest results – from 165 participating companies – come just in time for the SEC’s upcoming ‘proxy process’ roundtable. Here’s a sampling:

– 92% of companies surveyed had a proxy advisor make a recommendation on an issue featured in their proxy statements, nearly identical to 2017, but an 11% increase over 2016.

– 83% of companies carefully monitor proxy advisors’ recommendations for accuracy or reliance on outdated information.

– 21% of companies surveyed formally requested previews of advisor recommendations—a 9% decrease from 2017, but little changed from 2016. For companies that requested a preview, proxy advisory firms provided them only 44% of the time, a 4% drop from 2017.

– 38% of companies asked proxy advisors for opportunities to provide input both before & after the firms’ recommendations were finalized. However, as in previous years, the amount of time companies were given to respond to the recommendations varied. Companies again reported being given anywhere from 30 to 60 minutes to two weeks. In 2018, 1 to 2 days was a common response among companies.

– 39% of companies believed that the proxy advisors carefully researched and took into account all relevant aspects of the particular issue on which it provided advice, up from 35% in 2017.

– 29% of the companies pursued opportunities to meet with proxy advisors on issues subject to shareholder votes, a significant decrease from 52% in 2017. Of those companies that sought a meeting, their request was denied 57% of the time, significantly more often than in 2017. Companies reported mixed results from meetings they had.

– One perceived problem with the proxy advisory system has been a trend toward “robo-voting” where a company’s outstanding shares are voted in line with an ISS or Glass Lewis recommendation in the 24-hour period after the recommendation is issued. With ISS, several companies reported that 10%-15% of their shares would vote automatically in line, while others estimated that between 25%-30% fell into that category. The problem seemed to be less apparent with Glass Lewis, with many companies reporting that less than 10% of their shares would be voted in line within 24-hours.

Quarterly Reporting: SEC Chair Says Here To Stay (For Now)

Back in August, John predicted that the latest push for semi-annual reporting wouldn’t go too far. Yesterday, SEC Chair Jay Clayton seemed to confirm that view for the near-term – except, perhaps, for a remote chance for smaller companies. That’s based on these remarks – reported in this WSJ article and this blog from Cooley’s Cydney Posner:

“I don’t think quarterly reporting is going to change for our top names anytime soon,” Clayton said. “It was good of the president to raise it,” he said, adding that it could make sense to ease the requirements for smaller companies….

“The President did touch on a nerve—which is ‘Are people running their companies too much for the short term in response to pressures?'” Clayton said in a brief interview after the event. “We’ve been hearing that for a while.” …While Clayton lauded Trump and others for raising the issue, he said that other factors like activist investing are also behind companies becoming more focused on the short term.”‘I would not say the driving factor is quarterly reporting.”

Across the Pond: New Governance & Reporting Requirements

From the land of the “original” say-on-pay, the UK is now revamping its “Corporate Governance Code” to encourage the long-term success of its businesses – and improve public confidence following some high-profile scandals. This WSJ blog summarizes a few of the enhanced “comply or explain” requirements:

– Vesting & holding period of 5 years or more for shares awarded to executives under long-term incentive plans

– Disclose when board chair’s tenure exceeds 9 years

– Disclose how the company’s approach to corporate governance contributes to long-term success

– Address cases in which more than 20% of shareholders vote against a management proposal

– Enhance workforce engagement – e.g. by creating an advisory panel

– Describe the nominating committee’s process, the board’s diversity policy and the gender balance of senior management

The code applies to companies listed in the premium segment of the London Stock Exchange – they’ll need to start complying in January. And although the revisions don’t add specific diversity targets or require companies to disclose broader diversity stats, that’s under consideration. This article notes that the UK’s Financial Reporting Council isn’t happy with the status quo and has been contacting companies to encourage more disclosure – though some people worry that will lead to useless boilerplate.

Liz Dunshee