I’m not referring to the kind of proposal at the right; rather, I’m referring to shareholder proposals – one of the topics of a recent Executive Order signed by our fearless leader. (Yes, that is a reference to Rocky and Bullwinkle).
I’ve already commented on the possible impact of the Executive Order on proxy advisory
The good news is that the administration is reported to be working on an executive order to restrict proxy advisory firms. The bad news is that the administration is reported to be working on an executive order to restrict proxy advisory firms.
If the preceding paragraph seems contradictory, read on.
I am no fan of
Once upon a time, few if any investors seriously challenged executive pay. Executive compensation was, as always, a hot topic, but in the days before say-on-pay votes, it wasn’t easy to effectively object to excessive pay packages. Moreover, as one of the more outspoken members of the investor community once told me, as long as
I have long been a champion of shareholder engagement. Since as far back as the 1980s, I have believed that companies and investors alike greatly benefit from engagement; I even advocated for engagement by individual directors – a view that generated some strong adverse commentary from those in the corporate community who disagreed with me. It’s therefore extremely gratifying to me that what was a rare and often disparaged occurrence has become the norm. Even prestigious law firms that referred to director-investor meetings as “corporate governance run amok” now embrace the practice.
I also admit that, despite my disagreement with the principles behind say on pay votes, such votes have had the very positive unintended consequence of making engagement commonplace. In fact, there is so much engagement going on that some investors can’t find the time to meet with the companies they own.
So far, so good.
However, I believe that things may be going too far. I refer, specifically, to the new movement to have a “say on climate” vote at every public company’s annual meeting (or, as the corporate community increasingly refers to it, the annual general meeting, or AGM – as opposed to an annual “specific” meeting, I suppose). The vote would be similar to the say on pay vote – advisory, non-binding, and so on. I have not yet heard anything about a second advisory vote to determine how often a say on climate vote would need to be taken, but I would not be surprised to learn that it’s under consideration somewhere.
Continue Reading Say what???
In case you missed it, there was a rather provocative article in a recent issue of The Wall Street Journal entitled “How to Give Shareholders a Say in Corporate Social Responsibility” (subscription required). It was written by a professor and an executive fellow at London Business School and suggests that “if companies are going to pursue goals beyond profits, investors should be allowed to weigh in.” Specifically, it proposes “to give investors a ‘say on purpose’ vote, similar to the two-part ‘say on pay’ votes that investors have in Europe.” The article goes on:
“Here is how it would work. A company issues a statement… stating its purpose beyond profits…. [I]t would clarify the… trade-offs the company might make between investors and stakeholders (say, it will sacrifice profits to reduce carbon emissions) or between different stakeholders (it will decarbonize even though doing so will lead to layoffs). Every three years, investors would have a ‘policy vote’ on this statement, to convey whether they buy into it and the trade-offs it implies. An investor would vote against it if he or she disagrees with the priorities, or if it is so vague it gives little guidance on what the company stands for.”
Now I grant you that say on pay votes have generally benefited both companies and investors by encouraging and facilitating engagement between the two. I also grant you that among the topics investors and companies might discuss is how companies should address their “purpose.” But voting on it? I beg to differ.
Continue Reading Say on What???
When a company issues bad or less-than-good news on a Friday or the eve of a major holiday, say just before July 4th, investors and the media generally squawk like the proverbial stuck pig. And there is some justification for that squawking. After all, good news and bad news should be treated in a similar manner, and IMHO it’s too cute by half when a company tries to sneak something past the public at an odd time in the hopes that it won’t be noticed.
However, it appears that Institutional Shareholder Services does not regard itself as subject to the same concerns. Specifically, on November 2, the eve of what was arguably one of the most newsworthy if not significant elections in recent history, ISS snuck out an announcement that, effective January 2, 2021, it would no longer provide draft proxy voting reports to the S&P 500. Apparently, ISS – which has long been criticized for limiting the distribution of draft voting reports to the S&P 500 – has decided that the way to eliminate that criticism is not to send out draft reports at all.
Instead, ISS will send out proxy voting reports to its clients — i.e., investors — earlier and will send reports to all issuers at the same time at no cost. Thus (according to ISS), companies will have the time to provide feedback, and we’re assured that its “formal ‘Alert’ process” will enable companies to correct any errors and investors to change their votes. Anyone who’s gone head-to-head with ISS knows how well that process works; corrective alerts can get lost in the shuffle, votes don’t get changed, etc. And this new policy will almost surely lead to a big increase in the number of alerts.
Continue Reading ISS Tries to Hide in Not-So-Plain Sight
A few years ago, a wonderfully outspoken member of the institutional investor community congratulated me on a corporate governance award I’d received. She apologized for not being able to make it to the awards ceremony, referring to it – very aptly, IMHO – as the “nerd prom.”
Well, we’ve progressed from the nerd prom to a nerd war – specifically, the nasty fight over the August 19 Statement on the Purpose of the Corporation, signed by 181 CEO members of The Business Roundtable. The Statement suggested that the shareholder-centric model of the modern American corporation needs to be changed and that “we share a fundamental commitment to all of our stakeholders.” The stakeholders listed in the Statement were customers, employees, suppliers, and the communities in which the companies operate; however, other stakeholders were referred or alluded to, such as the environment. And the final bullet point in the list stated that the signers were committed to:
“Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.”
As we approach the end of 2018, it’s only natural to look back on some of the year’s events – and some non-events. For my money, one of the most significant non-events was the inauguration of CEO pay ratio disclosure, one of the evil spawn of Dodd-Frank.
In the interest of brevity, I’ll skip the background of the disclosure requirement, except to say that it seemed intended to shame CEOs – or, more accurately, their boards – into at least slowing the rate of growth in CEO pay. Some idealists may have actually thought that it would lead to reductions in CEO pay. Poor things; they failed to realize not only that all legislative and regulatory attempts to reduce CEO pay have failed, but also that such attempts have in every single instance been followed by increases in CEO pay.
So the 2018 proxy season, and with it pay ratio disclosures, came and went. Sure, there were media outcries about some of the ratios, but they failed to generate any traction. Companies may have incurred significant monetary and other costs to develop the data needed to prepare the disclosures, but their concerns about peasants storming the corporate gates with torches and pitchforks proved needless. Few, if any, investors – and certainly no mainstream investors – seemed to care about the pay ratios. Employees making less than the “median” employee didn’t rise up in anger. Even the proxy advisory firms seemed to yawn in unison.
So that’s that. Or so you’d think.Continue Reading To pay ratio advocates, nothing succeeds like excess
A while back – March 2017, to be exact – I posted a piece entitled “Beware when the legislature is in session”, citing a 19th Century New York Surrogate’s statement that “no man’s life, liberty or property are safe while the legislature is in session.”
It may be time to amend that statement, for Washington seems to be at it regardless of whether the legislature is in session. A very rough count suggests that there are more than 20 pending bills dealing with securities laws, our capital markets, corporate governance and related matters. And that does not include other initiatives, such as the President’s August 17 tweet that he had directed the SEC to study whether public companies should report their results on a semi-annual, rather than a quarterly, basis.
Problems with the Approach
I’m not saying that all of the ideas being floated are awful, or even bad. (One good thing is that our legislators seem to have decided that trying to give every statute a name that can serve as a nifty acronym isn’t worth the effort.) In fact, some of the ideas merit consideration. However (you knew there would be a “however”), I have problems with the way in which these bills deal with the topics in question. (I have problems with some of the ideas, as well, but more on that later.)
Problems with the Proposals
As promised (threatened), I also have concerns about a number of the proposals being bruited about, but for the moment I’ll focus on two of them – eliminating quarterly reporting and Senator Warren’s “Accountable Capitalism Act”.
Continue Reading Dear Washington: How can we miss you if you don’t go away?
A few weeks ago, I attended the “spring” meeting of the Council of Institutional Investors in Washington (the quotation marks signifying that it didn’t feel like spring – in fact, it snowed one evening). These meetings are always interesting, in part because over the 15+ years that I’ve been attending CII meetings, their tone has changed from general hostility towards the issuer community to a more selective approach and a general appreciation of engagement.
So what’s on the mind of our institutional owners? First, an overriding concern with capital structures that limit or eliminate voting rights of “common” shareholders. CII’s official position is that such structures should be subject to mandatory sunset provisions; that position strikes me as reasonable (particularly as opposed to seeking their outright ban), but it’s too soon to tell whether it will gain traction.Continue Reading News from the front