I blogged yesterday about the spike in “against” recommendations from ISS each June, for director votes and say-on-pay. In its initial look at how the “June phenomenon” applies to say-on-pay votes, Exequity looked at whether the voting trends could be explained by industry practices or pay-for-performance disconnects. Neither of those possible factors appeared to drive the trend. Exequity also looked at “repeat offenders” – which did seem to contribute somewhat to the spike, but only partially.

A member said they’d given it some thought, and pointed out that there could be another straightforward explanation:

Compared to April and May, the proportion of June meetings held by small- and mid-cap companies is higher. Those companies are more likely to have persistent material weaknesses in internal controls (a major driver of “withhold” recommendations on small-cap directors); and more likely to lack board diversity (which was a significant driver of withhold recommendations in prior years).

I’ve also noticed that in some cases, accounting issues, succession crises and other indicators of deeper problems are what cause the shareholder meeting to be delayed until June (if the company is non-timely in filing its 10-K, it may not be able to hold its AGM on the normal schedule, for example).

I’d also note that some smaller companies are less likely than their larger counterparts to make changes in response to a low say-on-pay vote – and that could drive adverse recommendations the following year – including against compensation committee members in some cases. Exequity’s “repeat offender” analysis took some of that into account and found it’s a contributing factor.

At any rate, in my experience, many small cap companies would love to have the luxury of worrying about ISS voting recommendations and AGM scheduling! Companies that geek out over a “spike” are probably not the ones affected by it…

– Liz Dunshee