What We Learned in 2012 and What We Can Expect in 2013
At the recent MSTA conference, Carl Hagberg of Carl T. Hagberg & Associates and John Ferguson of Morrow & Co. LLC presented an open dialogue regarding the past proxy season as well as strategies for next year. Here is a synopsis of their comments.
Activists: One of the key issues this past proxy season, was dealing with activists such as 99% and Occupy Wall Street. Businesses that had disruptions at their meetings due to these groups included companies such as Wells Fargo, Verizon and Bank of America. When the CEO or Chairman of the Board would open the floor to questions, about 25-30 people would break into 5-6 smaller groups and would get up and begin chanting or protesting about a specific subject.
Strategy for 2013:
- Identify potential protesters prior to the meeting. By looking at the one-share owners prior to the record date, companies may be able to produce a list of these individuals for the annual meeting
- Establish ground Rules at the beginning of the meeting. For instance, all questions must be addressed to the CEO or Chairman of the Board.
- Make sure that the CEO/Chairman is always in control of the meeting.
Proxy fights: There was a flurry of proxy fights this season. The companies that were most vulnerable were the small and mid-cap sized companies, especially those under a $500 million market cap.
Strategy for 2013:
- Take all proxy fights very seriously
- Make sure to have a top notch proxy solicitor and inspector, and retain excellent advisors.
Proposals: It is becoming harder for Issuers to get proposals passed. Factors include individual investors voting at lower and lower rates, currently at approximately 11%, and activists picking on smaller companies that are still using plurality voting and are less experienced in dealing with shareholder issues.
Strategy for 2013
- Companies will need to get to know their shareholder base. How many shares are registered, beneficial, or employee owned? Once a company has this information, it can take action to reach out to shareholders using several different methods such as follow-up mailings, phone calls, or a specific message in the chairman’s letter.
- Make sure that the company’s directors are voting their shares.
- Companies can use telephone calling/voting using a solicitor. On the pro side, this can be a valuable and strategic tool, but the company needs to make sure that they review and approve the script. The downside is that if it isn’t done well, you may cause issues with your shareholder base.
Say-on-Pay: This is not problem for issuers unless they fail to pass a proposal. ISS guidelines state that if they fail by more than 30% or more, that is a high enough percentage to warrant a more explicit response or disclosure in the proxy statement in the following year. ISS would like to see issuers go out to their institutional clients, that they meet with them to discuss their compensation policies, and that they come back to review and implement changes.
Strategy for 2013:
- The CEO or management should plan to meet with large shareholders (5% or larger) at least on an annual basis to discuss the company’s plan. This helps keep institutional holders on the company’s side.
- A company’s compensation committee should not rely on a compensation consultant to deliver the entire presentation or even the key information.
Proxy access: In 2012, there were several proposals and variations submitted by activists. Their targets were typically companies that either performed poorly or had well publicized governance failings. John predicted that “proxy access for 3% shareholders with a three year holding period” is going to emerge as the standard.