2015 Proxy Season Wrap-Up - Foley & Lardner · 2019-04-17 · Jason M. Hille Senior Counsel ... Effect of DuPont/Trian Shareholder Activism Developments 5 ©2015 Foley & Lardner LLP

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©2015 Foley & Lardner LLP • Attorney Advertising • Prior results do not guarantee a similar outcome • Models used are not clients but may be representative of clients • 321 N. Clark Street, Suite 2800, Chicago, IL 60654 • 312.832.4500

2015 Proxy Season Wrap-Up

July 15, 2015

©2015 Foley & Lardner LLP

Today’s Presenters

Joshua A. AgenSenior CounselFoley & Lardner LLP

Jason M. HilleSenior CounselFoley & Lardner LLP

Richard H. GrubaughSenior Vice PresidentD.F. King & Co., Inc.

Patrick S. McGurnSpecial CounselInstitutional Shareholder Services

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■ Questions can be entered via the Q&A widget open on the left-hand side of your screen. We will address questions at the end of the program, time permitting.

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Housekeeping

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■ Shareholder activism developments in 2015■ 2015 proxy season voting results and trends■ Proxy access developments■ Update on SEC rulemaking

Today’s Agenda

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■ Continued high levels of activity » Settlements (including board seats) were up, but

support for activist candidates in proxy fights was down

» Larger companies increasingly subject to hedge fund activism

» Partnerships among hedge funds and institutional investors

■ Effect of DuPont/Trian

Shareholder Activism Developments

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2015 Top 10 Shareholder Proposals

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Source: ISS*Data through June 30, 2015

97 94

76

39 37 36 37 3531

27

23

81

55

62

36

26 2326

5

1921

15

0

20

40

60

80

100

120

Number of Proposals Submitted Number of Proposals Submitted to a Vote

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■ Proxy access refers to the ability of shareholders to nominate their own director candidates and have the Company include them in the Company’s proxy statement and proxy card

■ SEC adopted a universal proxy access rule in 2010 –3%/3 years for up to 25% of Board

■ This rule was invalidated by the DC Circuit Court in 2011, but the door remained open for private ordering through company-specific proposals

Shareholder Proposal #1 Proxy Access

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■ In 2015, there were 100+ shareholder proposals seeking proxy access, most from the NYC Comptroller■ Up from 17 proxy access proposals in 2014

■ Some companies sought to exclude by including conflicting management proposal and seeking a no-action letter from the SEC Staff under Rule 14a-8(i)(9)

■ SEC stopped issuing no-action letters under this rule in January 2015

Proxy Access (cont’d)

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■ Alternative approaches to proxy access:■ Wait for a shareholder proposal and include it in the proxy

statement

■ Preemptively adopt proxy access bylaw■ May not foreclose shareholder proposal with different form

■ Management proposal on proxy access■ Question on status of SEC no-action relief concerning exclusion of

shareholder proposal due to competing management proposal

■ Promise to adopt in the future


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■ Form of proxy access bylaw■ No accepted uniform template, but shareholder proposals

are routinely 3%/3 years/25%

■ ISS generally supports 3%/3 years/25%

■ Some alternative forms include■ 5%/3 years/25%

■ 5%/3 years/20%

■ 3%/3 years/20%

■ 10/20 shareholder aggregation limit


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84% of proxy access shareholder proposals that were submitted went to a vote, and received significantly more support than in past years

Of the proposals that went to a vote, 59% received majority support/passed ISS recommended a vote FOR 100% of shareholder proposals for proxy access

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0 0 9 13 17 81

31.4% 28.5%33.9%

54.9%

31.0% 24.9%33.7%

54.5%

0%

10%

20%

30%

40%

50%

60%

0

10

20

30

40

50

60

70

80

90

2010 2011 2012 2013 2014 2015

Number of Proposals Submitted to a Vote Support Level (w/o abstains) Support Level (w/ abstains)

Proxy Access Voting Results


Of the 11 companies which submitted board-sponsored proposals for proxy access: 10 of these companies had a dueling shareholder proposal submitted (3 of these 10, however, were withdrawn prior

to the meeting) (The remaining company had had a shareholder proposal for proxy access in 2014)

ISS recommended FOR these board sponsored proposals for proxy access ONLY when there was no competing shareholder proposal on the ballot (4 companies)

The terms of these board-sponsored proposals varied Almost equal mix of either 5% or 3% ownership requirements, however included a 3 years ownership requirement

(6 of the proposals were at 5% / 5 were at 3%) Almost all had limits on the number of stockholders which could be part of the group, and/or a lowered cap on the

number of directors elected (generally 20% rather than 25% requested by most shareholders)

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0 0 0 2 4 11

28.5%95.2%

59.1%

24.9% 94.4%

58.6%

0%

20%

40%

60%

80%

100%

120%

0

10

20

2010 2011 2012 2013 2014 2015Number of Proposals Submitted to a Vote Support Level (w/o abstains) Support Level (w/ abstains)

Board-Sponsored Proposals for Proxy Access

(Also of note, a handful of companies implemented proxy access, without putting it up for a vote or receiving a shareholder proposal)

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Although somewhat fewer proposals went to a vote this year, political contributions and lobbying payments remain at the center of shareholder attention

However, these proposals still continue to receive relatively low support overall and no proposal garnered majority support in 2015

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34 43 56 73 83 55

27.1%

31.4%

26.1%28.5% 28.3% 29.2%

22.2%

26.1%

22.9%

24.9% 24.6%25.8%

0%

5%

10%

15%

20%

25%

30%

35%

0

10

20

30

40

50

60

70

80

90

2010 2011 2012 2013 2014 2015


Shareholder Proposal #2: Report on Political Contributions/Lobbying Payments


42 28 53 60 60 62

28.4%

32.8%

35.6%

28.5% 31.2%29.1%

28.2%

32.6%

35.4%

24.9% 31.0%28.8%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

10

20

30

40

50

60

70

2010 2011 2012 2013 2014 2015


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Source: ISS, GMI Analyst

The combined Chairman/CEO role continues to be a focus, especially with a new ISS policy approach this year

63% of companies received a FOR recommendation from ISS in 2015 and received average support of 35% In contrast 48% of companies received a FOR recommendation from ISS in 2014 and received average support of 40%

37% of companies received an AGAINST recommendation from ISS in 2015 and received average support of 19% In contrast 52% of companies received an AGAINST recommendation from ISS in 2014 and received average support of

23% Two proposals received majority support in 2015, with average support of 54.45%

S&P 500:

Chairman/CEO combined role: 51%

Chairman/CEO split role:49%

Russell 3000:

Chairman/CEO combined role:38%

Chairman/CEO split role: 62%

*Data through June 30, 2015

Shareholder Proposal #3: Independent Chairman

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Support for written consent proposals has generally declined due to certain large institutional investors viewing other positive governance provisions as sufficient channels by which to address concerns, such as the right to call special meetings; however, 94% of companies received a FOR recommendation from ISS on this proposal in 2015

Shareholder Proposal #4: Act by Written Consent

15Source: ISS

18 33 21 27 26 36

54.4%

48.3%45.7%

28.5%38.3% 39.4%

53.6%

47.8%45.2%

24.9%37.9% 39.1%

0%

10%

20%

30%

40%

50%

60%

0

10

20

30

40

2010 2011 2012 2013 2014 2015




ISS supported all of these proposals, however they consistently receive fairly low support Two proposals received majority support in 2015

Shareholder Proposal #5: Pro-rata Vesting of Equity Awards

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1 2 12 73 19 26

28.7%

39.6%

36.9%

28.5%

37.9%

34.0%

28.3%

39.3%

36.6%

24.9%

37.7%

33.8%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

10

20

30

40

2010 2011 2012 2013 2014 2015


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Many of these proposals were withdrawn, and average support remained low for those that went to a vote

ISS supported 78% of these proposals; however, no proposal gained majority support

Shareholder Proposal #6: Greenhouse Gas Proposals

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9 7 3 6 20 23

23.0%

18.8%

27.9%28.5%

24.6%

22.7%

18.2%

14.4%

25.2%

24.9%

21.0%19.7%

0%

5%

10%

15%

20%

25%

30%

0

10

20

30

2010 2011 2012 2013 2014 2015



Although a large number of proposals were submitted, the majority of shareholder proposals for equal employment opportunity policies and/or anti-discrimination policies were either withdrawn or omitted on the grounds that it was related to ordinary business operations of the company

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Source: ISS

9 9 9 9 9 5

32.3%30.4% 29.9%

28.5% 32.8%

25.6%28.2%

26.4% 26.9%24.9%

30.4%

23.2%

0%

5%

10%

15%

20%

25%

30%

35%

0

20

2010 2011 2012 2013 2014 2015

Number of Proposals Submitted to a Vote Support Level (w/o abstains) Support Level (w/ abstains)*Data through June 30, 2015

Shareholder Proposal #7: Anti-discrimination & EEO Proposals

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Although a consistently common shareholder proposal, it continues to receive fairly low support and no proposals in 2015 garnered majority support

Shareholder Proposal #8: Report on Sustainability

19Source: ISS

14 9 10 13 13 19

30.8%33.5% 32.3%

28.5%

28.7%31.0%

25.3%

28.2% 28.8%

24.9%

24.6%26.3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

10

20

2010 2011 2012 2013 2014 2015




Shareholder Proposal #9: Call a Special Meeting

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Source: ISS, Harvard Law School

44 30 17 9 13 21

43.1% 41.2%

45.4% 44.6%41.6% 42.4%

42.8%40.8%

44.8% 44.3%

41.3% 42.2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

10

20

30

40

50

2010 2011 2012 2013 2014 2015


In the past few years, many shareholder proposals were omitted due to management submitting its own special meeting proposal

This year reflected an increase in number of shareholder proposals that went to a vote, although still receiving relatively low support (received majority support at 4 companies in 2015)


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New to the top 10 shareholder proposal list in 2015, the number of clawback proposals significantly increased this season; however, no proposals received majority support

Shareholder Proposal #10: Clawback of Incentive Payments

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Source: ISS

*


4 2 0 1 3 15

45.5%

35.6%

52.9%

28.7% 28.4%

44.8%

32.9%

52.6%

28.4% 28.2%

0%

10%

20%

30%

40%

50%

60%

0

10

20

2010 2011 2012 2013 2014 2015



■ SEC proposed rules for comment on July 1, 2015

■ Rules would implement Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd Frank)

■ Would direct national securities exchanges and associations, such as the NYSE and Nasdaq, to adopt listing standards that would require listed companies to develop and implement compensation clawback policies

SEC Rulemaking on Compensation Recovery Policies (“Clawbacks”)

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■ Under the proposed rules:■ Listed companies would be required to have written

compensation clawback policies that require the recoupment of certain incentive-based compensation received by current or former executive officers

■ Clawback-related disclosures required in SEC filings

■ The listing standards would generally apply to all issuers with a class of securities listed on a national securities exchange or association

■ Includes foreign private issuers, controlled companies, smaller reporting companies and emerging growth companies

Clawback Rules (cont’d)

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■ Clawback would be triggered by an accounting restatement required to correct an error that is material to previously issued financial statements

■ Would apply to incentive-based compensation received by current or former executive officers during the 3 fiscal years preceding the date on which the issuer is required to prepare the accounting restatement

■ Incentive-based compensation subject to the clawbackwould include compensation received due to achievement of a goal based on accounting principles or on stock price or total stockholder return (TSR)■ Stock options tied solely to continued employment would not be

subject to the policy


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■ Amount of recovery: excess of the amount actually received over the amount that would have been received based on the restated numbers■ Determined on a pre-tax basis ■ Where the incentive compensation is based on stock price or

TSR, reasonable estimates could be used to calculate the excess amount

■ Fault or involvement in financial statement preparation not relevant

■ Enforcement mandatory except in narrow circumstances:■ Where the cost of enforcement would exceed the amount of the

recovery■ Where recovery would be illegal under home country law


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■ Issuers not allowed to indemnify officers or pay for insurance to cover clawback amounts

■ Disclosure■ Clawback policy must be filed as an exhibit to annual

report

■ Information about enforcement of clawback policies required in proxy statements, information statements and Forms 10-K in specified circumstances


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75%(1937)

76%(1741)

78%(1761)

77%(1939)

79% (1477)

16%(412)

14%(312)

12%(274)

13%(333)

12%(228)

8% (209) 8% (186) 8% (184) 8% (192) 7% (138)

1% (37) 2% (58) 2% (55) 2% (57) 2% (39)

0%

25%

50%

75%

100%

2011 2012 2013 2014 2015

< 50%50 ‐ 75%75 ‐ 90%> 90%

■ Average support in 2015 at high of 91.8% (vs. 91.6% in 2014, 91.3% in 2013 and 90.8% in 2012)

■ A total of 39 proposals failed to obtain majority shareholder support in 2015 thus far, remaining steady at approximately 2% of the total for the past few years

Management Say on Pay: 2015

27Source: Institutional Shareholder Services (“ISS”)

Percent Approval

Say on Pay Approval Rates: Year over Year



■ Mandatory pay for performance disclosure■ SEC proposed rules for comment in April 2015

■ Comment period ended July 6, 2015

■ Rules as proposed would require disclosure of:■ The relationship between executive compensation actually paid to

the registrant’s executive officers and the cumulative TSR of the registrant; and

■ The relationship between the registrant’s TSR and the TSR of a peer group chosen by the registrant

SEC Rulemaking on Mandatory Pay for Performance Disclosure

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■ Under the proposed rules, the required disclosure consists of two components:■ The following table covering the preceding 5 years (3 years for

smaller reporting companies), using XBRL:

■ A graph or narrative (or both) providing a “clear description” of (1) the relationship between executive compensation actually paid and registrant TSR, and (2) the relationship between registrant TSR and peer group TSR

Pay for Performance Rules (cont’d)

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■ Under the proposed rules, compensation “actually paid” would be based on Summary Compensation Table, but with a few differences:■ Value of equity awards included at time of vesting rather

than grant

■ Pension plan value would be limited to changes attributable to the applicable year of service


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■ Smaller reporting companies would be permitted to provide scaled disclosure:■ Required to disclose only the three most recently

completed fiscal years;

■ Not required to disclose amounts related to pensions; and

■ Not required to present a peer group TSR

■ Emerging-growth companies and foreign private issuers would be exempt

■ Transition period to phase-in full disclosure (3 years initially)


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■ CEO pay ratio disclosure■ Dodd-Frank requires the SEC to issue rules requiring

issuers to disclose in their proxy statements a “pay ratio,” described as the following:■ The median of the annual total compensation of all employees of

the issuer, except the CEO; the annual total compensation of the CEO; and the ratio of those two amounts, with total compensation determined in accordance with Item 402 of Regulation S-K.

■ The SEC proposed rules in September 2013

■ Hedging policy disclosure rules proposed in February 2015

■ There is currently no timetable for these final rules

Other SEC Rulemaking

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QUESTIONS & ANSWERS

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Contact Information■ Joshua A. Agen

Foley & Lardner [email protected]

■ Jason M. HilleFoley & Lardner [email protected]

■ Richard H. GrubaughD.F. King & Co., [email protected]

■ Patrick S. McGurnInstitutional Shareholder Services301.556.0402 [email protected]

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■ A copy of the PowerPoint presentation and a multimedia recording will be available on our Web site within 2-3 days: http://www.foley.com/ndi-checkpoint-2015-proxy-season-wrap-up/

■ CLE questions? Contact Ellie Kemmeter at [email protected]

■ We welcome your feedback. Please take a few moments to complete the survey before you leave the Web conference today

Thank You!

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Documents

2015 Proxy Season Wrap-Up - Foley & Lardner · 2019-04-17 · Jason M. Hille Senior Counsel ... Effect of DuPont/Trian Shareholder Activism Developments 5 ©2015 Foley & Lardner LLP