BoardroomDirect: Issues in brief

Update on the current board issues: April 2015

Issues in brief


Update on 2015 proxy access proposals

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With proxy access, shareholders who meet certain criteria can include a slate of directors to challenge sitting directors on the company’s proxy rather than filing their own. In 2014, there were only 17 such proposals filed, with 13 going to a vote and five receiving majority support.

As of this writing in the 2015 proxy season, 64 companies have taken some type of action on proxy access bylaw proposals, according to the proxy solicitation firm Morrow & Co. A total of 107 companies have received proxy access shareholder proposals this year.

According to, which tracks the Fortune 250, as of April 14, 2015, one of three proxy access shareholder proposals that has been voted on received majority support.

Morrow also reports that 36 companies included a shareholder proxy access proposal in the proxy statement, though companies recommended voting against it. Two companies included such proposals and recommended voting for them.

The remaining 26 companies have taken the following actions:

  • Five companies adopted their own bylaw.
  • Eight adopted a bylaw in response to a shareholder proposal.
  • Seven agreed to adopt a bylaw at some point in response to a shareholder proposal.
  • Five companies are including both a management and shareholder proposal on the ballot with three being advisory and two binding.
  • One company included a management proposal in the proxy statement while excluding the shareholder proposal.

Of those 26 companies, 12 included a 3% ownership stake and 3-year holding period as a threshold for filing a proxy access proposal, while 10 included a 5%/3-year-holding period threshold. About two-thirds of those companies opted for a 20% cap on the number of proxy access directors on the board.

Seventy-five of the proxy access proposals came from the New York City Pension Funds led by City Comptroller Scott M. Stringer. Illinois State Board of Investment and The Philadelphia Public Employees Retirement System joined Stringer in that campaign.


BlackRock and Vanguard address corporate governance matters

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In a letter to independent directors of its largest portfolio holdings, Vanguard Group, which oversees $3 trillion in client assets, stated: “We want to see our clients’ investments grow over the long term, and good governance is a key to helping companies maximize their returns to shareholders. We have no interest in telling companies how to run their businesses, but we have valuable governance insights to share with the board of directors.”

The letter, which was sent by Vanguard Chair and CEO F. William McNabb III, calls for better shareholder engagement by boards and sets out principles the asset manager considers good corporate governance, including:

  • Boards should be substantially independent of management and have independent leadership (i.e., chair or lead director).
  • Management should be accountable to the board and directors should be accountable to shareholders.
  • Shareholder voting rights should be consistent with economic interests. (No special share classes for added voting power.)
  • Anti-takeover devices such as classified boards or poison pills should be minimized.
  • Executive pay should be tied to creating long-term shareholder value.

Also, Vanguard suggested that companies create a “shareholder liaison committee” to promote better communication between shareholders and boards. “We’ve also seen boards successfully assign engagement expectations to existing committees,” the letter stated. “Ultimately, it’s more about the behavior than the framework. We’re indifferent as to how the board chooses to engage. What’s important to us is that it engages.”

BlackRock Inc., which manages more than $4 trillion in assets, recently updated its voting policies. The asset manager emphasizes the importance of corporate governance and the rights of shareholders to vote on corporate governance matters.

“We expect boards to consider and disclose how the corporate governance structures adopted upon initial public offering are in shareholders’ best long-term interests,” according to its updated policies. “We also expect boards to conduct a regular review of corporate governance and control structures, such that boards might evolve foundational corporate governance structures as company circumstances change, without undue costs and disruption to shareholders.”

The policies also address shareholder voting rights on corporate governance matters, such as changes to governance mechanisms and amendments to the charter and bylaws. “We may vote against certain directors where changes to governing documents are not put to a shareholder vote within a reasonable period of time, in particular if those changes have the potential to impact shareholder rights,” according to the policies.

BlackRock stated that when a nominating/governance committee considers director candidates it should take into consideration the diversity of experience and expertise of the current directors. “We encourage boards to disclose their views on the consideration given towards board diversity, including but not limited to, diversity of gender, race, age, experience, and skills…” the policies state.


Pension funds asking for board diversity disclosure

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Nine large public pension funds with more than $1.12 trillion in assets have called on the SEC to strengthen requirements of board diversity disclosure.

In a joint rulemaking petition, the funds urged the SEC to adopt a rule requiring disclosure of board nominees’ gender, race, and ethnic diversity, as well as their mix of skills, experiences and attributes. They want companies to indicate in a chart or matrix each nominee’s gender, race and ethnicity. This would amend the 2010 SEC rule that called for the disclosure of skills, experiences and attributes.

The proposal emphasizes the missed opportunities when governing boards lack diversity, which could lead to “groupthink” or lack of differing views. The letter cites a 2011 International Monetary Fund report stating a “high degree of groupthink” contributed to the IMF’s failure to correctly identify the risks leading up to the worldwide financial crisis.

“As large institutional investors, we have a real interest in electing a slate of board nominees who are well-positioned to help carry out a company’s business strategy and meet our long-term investment needs,” the group said.

The funds calling for the disclosure include CalSTRS, CalPERS, Connecticut Retirement Plans and Trust Fund, New York City Pension Funds, New York State Common Retirement Fund, Illinois State Board of Investment, Ohio Public Employees Retirement System, North Carolina Department of the State Treasurer, and Washington State Investment Board.