Proxy Access

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First Proxy Access Contest Ends with Nominee Withdrawal

After National Fuel Gas declared GAMCO’s proxy access nomination to be invalid, which we previously discussed here, GAMCO filed amendment no. 10 to its Schedule 13D, announcing that its proxy access nominee has informed the investor that he has decided to withdraw his name as a candidate. The 13D then stated that “GAMCO will not pursue proxy access.”
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Company Disputes Validity of First Proxy Access Nominee

National Fuel Gas (NFG) has informed GAMCO Asset Management (GAMCO) that its board has concluded that the company does not need to include GAMCO’s nominee in its 2017 proxy materials because GAMCO did not comply with the proxy access bylaws. We previously discussed the background of the nomination here.

Like other proxy access bylaws, NFG’s bylaws require a shareholder making a nomination to represent that it acquired the shares in the ordinary course of business and not with the intent to change or influence control of the company, and does not presently have such intent.
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First Proxy Access Nomination Surprises

The question of whether investors would use proxy access bylaws to make director nominations has been answered.

First came the Schedule 13D  with the announcement that GAMCO Asset Management and its affiliates have notified National Fuel Gas Company (NFG) that it is nominating one director pursuant to the company’s proxy access bylaws. The investor owns 7.81% of the company’s outstanding shares.
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IPO Governance Practices: A Davis Polk Survey

As public company governance remains in the spotlight, we examined the governance structures of the 50 largest U.S. newly public companies at the time of their initial offerings.  Our survey of both controlled and non-controlled companies found that those companies continue to adopt various takeover defenses at the time they enter the public market, a stark contrast to the current practices of the S&P 500.
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Status of Proxy Access Shareholder Proposals, Including Binding Bylaw Proposals

At annual meetings so far this year, investors have already voted on more than 30 shareholder proposals asking companies to make proxy access rights available to shareholders who have owned 3% of common stock for at least three years, with more than 50 proposals remaining to be decided through August.  Some of these proposals have been featured at companies that already adopted bylaws providing shareholders with the right to nominate candidates at those 3%/ three-year ownership thresholds, while other proposals are being presented at companies that are adamantly opposed to proxy access in any form.
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New York City Comptroller Announces Companies Targeted with Proxy Access Shareholder Proposals for 2016 Meetings

The New York City Comptroller issued a press release today announcing that the New York City pension funds (the Funds) have filed 72 new proxy access shareholder proposals, though many were sent to companies that also received the proposals in 2015.

This builds on the Boardroom Accountability Project that the Funds initiated in 2015 with 75 proposals. 
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ISS Issues FAQs on Voting Policies, Including Proxy Access

On Friday ISS issued new and updated FAQs to their proxy voting policies. Most notably, ISS indicated that it will evaluate a board’s implementation of proxy access in response to a shareholder proposal that received majority support by examining whether the major points of the shareholder proposal are being implemented.

In a nod to the complex nature and the evolving standards for proxy access bylaws, ISS will also examine the numerous additional provisions of the bylaws that were not part of the shareholder proposal. 
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Plurality Carve-Out in Majority Voting Standards

Ethan Allen’s seven nominees for the company’s board received overwhelming support in the recent proxy contest against the six candidates proposed by Sandell Asset Management.

The contest received some unusual attention, as noted in this WSJ article, after ISS criticized the company for using majority voting for the election of directors as a “potential entrenchment device.” 
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ISS Announces Updates to Proxy Voting Guidelines

ISS has issued its updates to its proxy voting guidelines effective for meetings on or after February 1, 2016.

The policy update is quite brief and does not address many of the questions asked in the survey period during the ISS consultation period.  Proxy access is only discussed in this update in the context of an actual contested election, while the survey questions had targeted specific bylaw terms.
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CalPERS Focus on Board Tenure as Measure of Director Independence

CalPERS is considering changing its proxy voting policies to account for issues of director tenure.  New language in its governance principles could state that director independence may be “compromised” at 10 years of service.  If implicated, companies are expected to “carry out rigorous evaluations to either classify the director as non-independent or provide detailed annual explanation why the director can continue to be classified as independent.” 
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Post-Season Review from Vanguard

In preparing for the upcoming proxy season, it is helpful to examine the information that investors provide about their most recent voting and engagement efforts.  We start with Vanguard.

In the 12 months ended June 30 of this year, Vanguard funds voted at more than 13,000 meetings covering 120,000 items.  The funds supported 93% of director nominees, voting against candidates for reasons related to attendance, independence or committee actions. 
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Development in Proxy Access Shareholder Proposals for 2016

Those following the latest developments on proxy access may be interested in Jim McRitchie’s recent blog post, where he posted the language of a new version of proxy access that he is submitting to companies, using CII’s recent best practices that we previously discussed here.

The three key differences between proposals that companies faced during the 2015 proxy season from different proponents include reference to: (a) the nomination by a shareholder or “an unrestricted number of shareholders forming a group,” (b) the request that the number of board seats available is the greater of two or 25% of the board and (c) the 3% ownership requirement to include “recallable loaned stock.”
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Retail Shareholders Voted Against Proxy Access Proposals

The importance of the retail shareholder vote came out in force this past season, as 85% of retail shares were cast against proxy access shareholder proposals at over 80 companies. At the same time, 61% of the shares held by institutional investors supported proxy access.

ProxyPulse, a report from Broadridge and PwC’s Center for Board Governance, examined 4,280 companies that held meetings between January 1, 2015 and June 30, 2015.
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Proxy Access Results and Investor Policies

Of the 63 companies that opposed proxy access shareholder proposals and have announced voting results, 36 proposals received more support than in opposition and 27 proposals did not obtain majority votes.  

Not all companies opposed the proposals. A few boards supported it and one company took a neutral position, which resulted in higher votes than the overall average vote tallies.
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Appeals Court Rules That Wal-Mart Can Exclude a Shareholder Proposal About Its Products

As has been reported, the U.S. Court of Appeals for the Third Circuit has decided that Wal-Mart does not have to include in its 2015 proxy materials a shareholder proposal requesting that the Compensation, Nominating and Governance Committee charter be amended to add oversight of implementation of policies that would evaluate whether the company should sell certain types of guns that the proponent argues endangers public safety, has the substantial potential to impair the company’s reputation or would be considered offensive to the values that are integral to the company’s brand.
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Proxy Access Developments

Two press releases announced that the New York City Comptroller has agreed to withdraw proxy access shareholder proposals at Staples and Abercrombie & Fitch.  Agreements have also been reached with Big Lots and Whiting Petroleum.   

Staples will include a management proposal to amend its bylaws to be voted on at its 2016 meeting.  The press release includes a quote from Staples’ CEO indicating that the agreement is a result of ongoing discussions with the company’s shareholders. 
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BlackRock Issues U.S. Proxy Voting Guidelines for 2015 Season

BlackRock has revised its U.S. proxy voting guidelinesfollowing their annual review of governance and proxy voting trends. The guidelines are not expected to result in significant differences from how BlackRock has voted in the past.

As expected, board composition is very much an issue of investor focus. BlackRock encourages boards to disclose their views on the director skill sets they view as necessary to effectively oversee management; the process for identifying candidates and whether sources outside of the incumbent directors’ networks have been engaged; the board evaluation process and its significant outcomes, if appropriate and without divulging sensitive information; considerations of diversity in terms of gender, race, age, experience and skills; and any other factors considered in the nomination process.
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Investors Weigh in on Proxy Disclosure

Even with the intense focus on improving proxy disclosure, a recent survey of investors from RR Donnelley indicates that few read all the details. 60% responded that they skip directly to specific sections, usually the CD&A executive summary. That, along with the proxy statement summary if one is available, and the CD&A, are considered the key sections. 
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Companies Challenge Proposals Submitted on Behalf of Shareholders

Two companies are challenging shareholder proposals submitted by an individual or entity on behalf of the actual shareholder, under different grounds, in two no-action letters to the SEC staff.

Apple argues that John Chevedden is not eligible to submit a proxy access proposal on behalf of Jim McRitchie, citing to a case filed by Waste Connections during the last proxy season in the Southern District of Texas.
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Another Proxy Access Proposal Wins

Since the SEC rules were struck down in 2011, proxy access shareholder proposals have not disrupted the corporate governance landscape as many had feared, but they are slowly gaining momentum. Recently, a proposal to allow shareholders owning 3% or more for at least three years to nominate directors on the company’s ballot received a strong showing of 62% in support at Darden Restaurants, home of Red Lobster and Olive Garden, among others.
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Examining Hewlett-Packard’s Proposed Proxy Access Rights

HP’s preliminary proxy statement filed recently included a company proposal to allow any shareholder, or no more than 20 in number, who hold 3% or more of HP shares continuously for 3 years to nominate candidates to the company’s board. This threshold tracks the previously adopted SEC proxy access rules. However, HP limits the number of candidates to 20% of the board, or the closest whole number below 20%, while the SEC rules had allowed for 25% and a minimum of one director.
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