I recently attended the Winter Meeting of the Council of Institutional Investors and thought you would like to know what the Council and its members are thinking.

The British Library
The British Library

What was NOT discussed – proxy access

First, one dog that didn’t bark was proxy access.  There was virtually no mention of the subject. I can only assume that proxy access has been adopted by a sufficient number of companies that it is no longer controversial or even worth discussing.

Coming to a company near you – majority voting…

What was worth discussing was majority voting in uncontested director elections, and if you are a mid- or small-cap company, you’d be well advised to think about it.  Among other things, the Council sent a letter last year on the subject to the companies in the Russell 3000, and was not encouraged by the responses.  Most large-cap companies have it, and it seems to be inevitable that smaller companies will be pressured to adopt it as well.  Frankly, I don’t think it’s worth fighting over, and early adoption might give a company a leg up on other governance challenges.

… and board diversity

This is another area for which companies of all sizes should be prepared to be pressed.  A number of companies were called out for having no women on their boards, including one with a large female customer base that has gone on record as saying they can’t find any qualified women.  Can you spell b-o-y-c-o-t-t?  Besides, women make great directors!

Climate change 

Unless you were asleep last year, you know that ESG and, in particular, climate change, is a very hot area (all puns intended).  We can expect increasing numbers of shareholder proposals, including some that ask companies to include ESG metrics in their compensation plans.

Trump administration initiatives

There is great concern in the investor community that the victories it achieved during the last eight years will be rolled back.  While it seems unlikely that Dodd-Frank will be repealed in its entirety, some investors are concerned about specific rules, such as those requiring conflict minerals and pay ratio disclosure.  It’s doubtful that there is sufficient unity within the investor community to effectively fight against changes; for example, traditional asset managers really don’t care much about conflict minerals, pay ratios and some other items that other investors care about greatly.

SEC independence and funding is another concern in the brave new world of Washington.  There are bills pending in Congress that could seriously hamstring the Commission from adopting any new rules, and in an era when there are strong arguments for the SEC to do more, funding cuts are in the works.  One rumor floating around is that because Acting Chair Piwowar is an “independent” rather than a Republican, President Trump can name three Republicans to the Commission, reducing the number of Democrats to a minority of one.

The plaintiffs’ bar is always represented at CII meetings, and its representatives are concerned with legislation that cut make it very difficult to bring securities law class actions in federal courts.  While I’m no fan of the plaintiffs’ bar, I think companies should be concerned about this too.  Would you like to defend class actions in 50 states or one class action in a federal court?

Non-voting shares

The CII is having a veritable hissy fit about the Snap IPO, because Snap’s public shareholders will have no voting rights.  I get their concern, but if they feel strongly they should have stayed away from the stock.  Clearly, that did not happen.

Other issues

Other issues discussed included the status of a pending SEC rule on so-called “universal proxies”; disclosure effectiveness initiatives; and a number of self-styled governance codes published in 2016.

If you’d like any more insights about any of the issues discussed at CII, let me know.

  • That’s too bad proxy access wasn’t discussed. I’ve been doing some research. I don’t think most investors have factored in the impact of requirements that shares be held continuously for three years. Fund holdings go up and down every quarter. There are 12 quarters in 3 years. Looking at the number of funds that can combine to get to 3% today is not nearly the same as the number of funds that have held for 3 years.