BoardroomDirect: Issues in brief

Update on the current board issues: August 2015

Issues in brief


SEC, CII publications look at proxy access

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Proxy access was the shareholder proposal that gained the most traction this past proxy season, with over 100 companies receiving such proposals. While over half of the proposals were adopted, not all proxy access policies are alike.

In August, the Council of Institutional Investors (CII) published "Proxy Access: Best Practices," a guide that highlights what it views as “troublesome provisions” cropping up in proxy access bylaw or charter amendments at public companies. Meanwhile, SEC staff members posted a working paper that looks at the future of proxy access.

The CII report offers the investor organization’s policies and positions on seven shareowner- provisions as a guide to companies that are drafting access mechanisms to their bylaws or charters.

The seven positions include:

  • A 3% ownership threshold
  • No limits on the number of shareholders that can work together to meet the ownership threshold
  • Access to at least two board candidates
  • Loaned securities to count toward ownership requirements
  • No required ownership of shares after the annual meeting
  • No restrictions on renominations
  • No limitations on director compensation from third parties

CII believes these or similar provisions should be included in proxy access bylaws so they can be workable.

The SEC’s staff working paper, Public versus Private Provision of Governance: The Case of Proxy Access, reports on a Division of Economic and Risk Analysis study of the “tradeoffs” between universal regulatory mandates and so-called “private ordering” where proxy access is determined on a company-by-company basis

The study, written by SEC staffers Tara Bhandari and Jonathan Kalodimos, and Pennsylvania State University student Peter Iliev, takes a look at proxy access history, including the Dodd-Frank Act universal proxy access rule that was overturned in federal court in 2011. It finds that private ordering, which is the version of proxy access that is allowed under the part of the SEC Dodd-Frank rule that was not overturned, may lead to a second-best outcome.

“We find that proponents do not selectively target those firms that were expected to benefit the most from universally mandated proxy access, and that tailoring of proposal terms is limited,” the authors wrote. “Moreover, management is more likely to challenge proposals at firms that stand to benefit more. Overall, we find that private ordering creates value, but it may not efficiently deliver proxy access at the firms that need it most.”


ISS 2016 proxy season policy formulation survey now open

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Proxy advisory firm Institutional Shareholder Services Inc. (ISS) is seeking input from institutional investors, corporate issuers, corporate directors and other market constituents as part of its 2016 proxy voting policy update process.

It is conducting an online survey until 5 p.m. ET on September 4.

This year the survey covers key issues including: use of equity compensation for non-executive directors, US proxy access, whether directors and CEOs serve on too many boards, and the role of share buybacks in the effective allocation of capital.

In addition to this global survey, ISS will conduct a variety of regional, topic-specific roundtables and conference calls to examine local market best practices and gather input that will factor into the development of its global benchmark policy guidelines.

After analysis and consideration of the survey responses, ISS will open a comment period for all interested market participants on the final proposed changes to its proxy voting policies for 2016.

A copy of the entire survey is here.