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Sep 27, 2017

Proxy season 2017 sees fewer contests, study finds

First half of year witnesses 38 proxy contests

This year’s main proxy season saw an unexpected drop in the number of proxy contests and a sharp rise in the number of AGMs taking place online, according to new research.

Despite the emergence of some high-profile cases and a general focus on shareholder activism in the media and industry professionals’ discussions, an analysis by Broadridge Financial Solutions and PwC’s Governance Insights Center finds there were fewer proxy contests during the first half of 2017 than during the same period last year. Q1 and Q2 of this year saw 38 contests, down from 47 during the first half of 2016, the report states. 

The authors of the report note that some contested solicitations were decided in negotiations before a shareholder vote took place. They add that the average length of campaigns decreased sharply in the first half of 2017 to 44 days, compared with 109 days during 2016. In addition, a total of 63 board seats were won in proxy contests during the first half of 2017 – which accounts for the majority of AGMs – compared with 139 for all of 2016.

‘The decrease in proxy contests and shortening of the length of campaigns clearly illustrates that boards are negotiating more with activists, and settling faster,’ says Paul DeNicola, managing director of the PwC center. Settling can help head off a shareholder vote.

The Broadridge and PwC report is based on analysis of 3,379 shareholder meetings held between January 1 and June 30, 2017.

Aside from proxy contests over specific directors, boards and governance teams face growing pressure from large institutional investors to engage with them regarding ESG-based shareholder proposals on issues such as board diversity and climate change.

The report highlights this by stating that, during the 2017 proxy season, climate change proposals were supported by 66 percent of institutional shares voted, as opposed to just 13 percent of retail shares. Similarly, board diversity proposals received backing from 31 percent of institutional shares voted but only 14 percent of retail shares.  

‘The data shows that institutional shareholders’ voting actions are consistent with their stated positions on climate change and board diversity. Patience appears to have run out for some institutions,’ says Chuck Callan, senior vice president of regulatory affairs at Broadridge, in a statement. ‘At the same time, retail shareholders as a group largely voted in line with company recommendations.’

VSMs
New technology has supported a move toward companies holding AGMs online. The analysis finds that 163 companies hosted virtual-only shareholder meetings (VSMs) in the first half of the year, compared with 122 during the first half of 2016 – an increase of 34 percent.

VSMs have faced criticism from some investors. For example, New York City comptroller Scott Stringer in April said he would be urging more than 15 companies to host in-person AGMs rather than VSMs, arguing that they ‘deprive shareowners of the fundamental right that, regardless of the number of shares they own, they can engage directly with management and directors – face to face – at least one time per year’ (CorporateSecretary.com, 4/5).

But issuers counter that they are seeing declining attendances at in-person AGMs for the same amount of work, Cathy Conlon, head of corporate issuer product and strategy for Broadridge’s investor communications solutions division, told attendees at a Shareholder Services Association (SSA) conference in July (CorporateSecretary.com, 7/26). She added that VSMs allow all shareholders to attend, regardless of where they live.

The report states that 12 percent of companies collected questions in advance of their VSM, 95 percent allowed questions to be submitted online during the meeting and 3 percent enabled shareholders to ask questions over a live telephone line.

Hertz assistant general counsel and assistant corporate secretary William Langston told the SSA conference his company had in the past attracted just two or three shareholders to its in-person AGMs, but that 12 had tuned in online to its VSM this year.

Appearing on a panel with Conlon, he said Hertz received no pushback from shareholders, who were allowed to submit questions via email ahead of the meeting and none of whom raised the format of the meeting as a concern.