May 16, 2011

Proxy Season: Support for Declassification, Majority Voting

Here’s news from Ted Allen of ISS’s Governance Institute:

So far this U.S. proxy season, investors have given greater support for shareholder proposals seeking declassified boards, majority voting in uncontested board elections, or independent board chairs. As of May 9, nine out of 12 shareholder proposals seeking to repeal staggered board terms had won majority approval (based on votes cast “for” and against”), according to ISS data. Among the recent votes are 95 percent at MEMC Electronic Materials, 81 percent at Alcoa, 66.8 percent at TECO Energy, and 66.3 percent at Webster Financial. Declassification proposals are averaging 69.3 percent support so far (if one excludes a 20.5 percent result at Ames National, which has significant insider ownership), according to ISS data. This topic averaged 61 percent support in 2010.

Majority voting proposals also are faring better this season, winning majority approval at eight companies. Among the recent votes are 77.6 percent support at SkyWest, 68.9 percent at CBL & Associates, and 64.6 percent at NV Energy. These resolutions are averaging 57 percent support at 14 companies, if a 20 percent result at Selectica, which previously adopted majority voting, is excluded. In 2010, this topic averaged 56.2 percent approval. There also has been overwhelming investor support for management proposals on these two topics. Seventeen declassification resolutions and six majority voting proposals have won more than 96 percent approval this year, according to ISS data.

Meanwhile, there have been four majority votes for special meeting proposals filed by shareholders, including a 60.7 percent result at NV Energy. Investors also have given majority support for four written consent resolutions, including a 59 percent vote at Alcoa and 52 percent at International Paper, according to proponents. Independent chair proposals have garnered majority support at two firms (Cedar Fair and Moody’s). So far, these resolutions are averaging 42.2 percent support at seven companies, up significantly from 28.5 percent in 2010. Among the recent votes are 35.3 percent support at Boeing and a 29.9 percent vote at Wells Fargo.

One surprise this year is the relatively small number of majority votes on proposals that seek to repeal supermajority voting rules for bylaws, takeovers, and other agenda items. So far this season, six resolutions on this topic have gone to a vote, resulting in majority votes at Ecolab, Eastman Chemical, and eBay. At this point last year, 20 proposals on this subject had gone to a vote, and there had been 16 majority votes. While investors have filed fewer proposals on this topic this year, the main difference is that companies obtained permission from the SEC to exclude 17 resolutions, often after pledging to present their own management proposals. Other majority votes include 67 percent support at Ball Corp. for a proposal seeking a shareholder vote on the company’s poison pill.

Note: Unless otherwise stated, the vote results for the shareholder proposals mentioned in this article and in other ISS reports are based on the votes cast “for” and “against” and don’t include abstentions or broker votes. This method of reporting votes is consistent with SEC Rule 14a-8(i)(12). Many companies use different standards for reporting vote results that are based on state corporate law.