No, I’m not referring to my age (I’m old, but not THAT old).

Rather, I’m referring to the supermajority shareholder votes that ISS has required, and that Glass Lewis now requires, for various matters.  Specifically, for the past several years, ISS policy has looked askance at any company whose say-on-pay proposal garnered less than 70% of the votes cast.  More recently, Glass Lewis has adopted a policy stating that boards should respond to any company proposal, including say-on-pay, that fails to receive at least 80% shareholder approval or any shareholder proposal that receives more than 20% approval.

Putting aside the irony that ISS and Glass Lewis have long railed against supermajority voting requirements imposed by companies, one wonders what the rationale is for upping the ante.  One possible reason is frustration that, despite negative voting recommendations from proxy advisory firms, the overwhelming majority of say-on-pay proposals pass – and by relatively large margins.  However, my hunch is that the real frustration is that companies don’t usually respond to shareholder proposals that don’t pass, and most shareholder proposals don’t pass.

I may be a radical here, but it seems to me that if a shareholder proposal garners a majority vote, the company has an obligation to respond.  That’s not to dictate the precise nature of the response, but at a minimum some response is called for.  On the other hand, if majority – up to 80% — votes against a shareholder proposal, why is a response called for (other than “no”)?  Similarly, if a board-sponsored proposal passes by that type of margin, why is the minority entitled to some response?  And that’s not even factoring in that in the political arena, a vote of 55% or more is currently considered a “landslide”.

I’ve long been an advocate of shareholder engagement – well before it became fashionable (or was even called “engagement” – in fact, it was more often referred to as consorting with the enemy).  And if a company decides to speak to the losers when a company proposal “only” gets a 75% vote, that’s great.  Similarly, it’s great to talk to the losers when a shareholder proposal only gets a 25% vote.  But a “response”?

It seems to me that ISS and Glass Lewis are moving the goalposts, or trying to.  Another term might be tyranny of the minority.  One can only wonder if ISS will respond in kind, or call Glass Lewis and raise its threshold to 85%.  Do I hear 90%?

  • John Ferguson

    Bob, great post! This is the upside down world of corporate governance – this is no place for logic!

    “What a strange world we live in…Said Alice to the Queen of hearts” Lewis Carroll

  • Peter Reilly

    I fear you are misinterpreting the guidelines of both proxy advisors. The kind of ‘response’ to which they refer is a recognition of the dissent and a demonstration of steps taken to understand the reasons for the dissent – it does not mean that management need implement changes.

    For context, these kind of ‘responses’ are currently expected under the UK Corporate Governance Code:

    “When, in the opinion of the board, a significant proportion of votes have been cast against a resolution at any general meeting, the company should explain when
    announcing the results of voting what actions it intends to take to understand the
    reasons behind the vote result.”

    Under proposed revisions (due to be effective for 2019 on), ‘significant’ will be defined as 20%.

    It is not unreasonable to expect companies to address – through a response and subsequent ‘engagement’ – why over a fifth of voting shareholders felt unable to support a management proposal. If they are engaged with their shareholder base anyway, it will be but a minor burden. If they are not already engaged, it might increase the likelihood they change!