Among the numerous informative and engaging Annual Conference sessions on Friday were the panel discussions on "Responding to Shareholder Proposals," "Board Evaluations," and "Recruiting Board Candidates: Qualifications, Tenure, Age and Diversity."
Not surprisingly perhaps, the Responding to Shareholder Proposals session - moderated by Gibson Dunn Partner and Society member Beth Ising - elicited some lively, divergent views, practices and perspectives among and between panelists Shareholder Advocate and CorpGov.net Publisher Jim McRitchie and Society members Dannette Smith (outgoing Society Board Chair and Secretary to the Board of UnitedHealth Group), and Jake Amsbary (Society Policy Advisory Committee Chair and Assistant Secretary, UPS). Notable takeaways include:
- Contrary to the approach of some investors, issuers generally agree that the most effective way to effect corporate change is for the shareholder to engage in a dialogue with the company - not to submit a shareholder proposal. From an issuer perspective, shareholder proposals are not perceived as collaborative, and should be used only as a tool of last resort when other forms of engagement have failed.
- Jim advised companies that if they don't already have a "robust" proxy access right in place, they should expect to receive a proxy access proposal from him - presumably, at some point (not necessarily for the 2017 proxy season as to all companies). As to what constitutes "robust," he cited as an example CII's "Proxy Access: Best Practices" issued in August 2015 (previously reported on here). In that regard, note that CII does not support an aggregation limit, and neither does Jim.
- As to what to expect in 2017 in the way of shareholder proposal topics (in addition to proxy access), Jim intends to begin filing proposals with companies that hold virtual-only annual meetings - a practice that he doesn't believe is conducive to optimal shareholder interaction, and to target institutional investors whose voting records he believes reveal a poor track record on supporting good governance practices - such as votes on proposals seeking greater ESG-related disclosure.
- From the corporates' perspective, the "If you could change just one thing about the shareholder proposal process" "wish list" shook out like this:
- $2,000 ownership threshold for submissions
- Resubmission thresholds
- Definitive and streamlined approach to effect the exclusion of errors and misleading statements in shareholder proposals
On the heels of the proxy access no-action request letters issued by SEC Staff earlier this year (reported on here), a re-review of the interpretation of Rule 14a-8(i)(10) (substantially implemented) tops Jim's "wish list."
The board evaluation data from the Society/Deloitte 2014 Board Practices Report (available on our Publications page) served as a great backdrop and segue to a robust discussion about board evaluation practices in the Board Evaluations panel moderated by Allstate Corporation Corporate Counsel & Assistant Secretary and Society member Katherine Smith. Among the numerous insights and tips offered by Katherine and panelists Beverly Behan (President, Board Advisor), General Howell Estes (Board Chair, DigitalGlobe), and Byron Loflin (CEO, Center for Board Excellence) were:
- Include new directors in the board evaluation process with questions geared toward, e.g., what attracted them to serving on this board in particular and their orientation and on-boarding experiences, so that the full board can reap the benefit of their input and the director can be involved in the evaluation's team-building process.
- Involve at least the key members of management in the process as well. The insights of members of management who work regularly with the board can identify board/management disconnects and lead to constructive changes.
Note that the Society is once again partnering with Deloitte on our signature Board Practices Survey. Expect to see the 2016 survey in July, with the report reflecting the survey results anticipated to be issued this coming Fall.
Moderator Securities Law Committee Chair and GM Assistant Corporate Secretary & Lead Securities Counsel Rick Hansen elicited informative insights on successful board practices and many words of wisdom in the panel: Recruiting Board Candidates: Qualifications, Tenure, Age and Diversity. Among the notable takeaways shared by panelists Shelley Dropkin (incoming Society Board Chair and Citgroup GC, Corporate Governance & Deputy Corporate Secretary), Belen Gomez (Director of Research & Content, Equilar), Chansoo Joung (Director, Apache Corporation) and Yumi Narita (VP, BlackRock Investment Stewardship) were:
- The top three director attributes sought are: 1) leadership experience, 2) finance background, 3) international expertise
- The fact that a measurable percentage of new director candidates are known to one or more current directors on the board shouldn't be presumed to be inconsistent with director independence. In a number of industries, industry relationships are key, and the fact is that people generally know others in the industry.
- "Appropriate" director tenure is director-specific. Just as employees and members of management frequently become more confident in their roles with experience and less concerned about challenging the status quo, long-tenured directors may be more likely to productively challenge management and think and act independently.