2016 Proxy Season Review: Shareholder Proposals

With most of the 2016 proxy season in the rear-view mirror, it’s clear that shareholder proposals continue to be a preferred vehicle for certain kinds of shareholder activism, though with limited effectiveness unless the company and the shareholder reach a negotiated outcome. Proxy access proved to be the notable exception. Overall, the total number of shareholder proposals submitted (916) was down from the all-time high in 2015 (943) but higher than in 2014 and 2013.¹ Proxy access proposals continued to dominate the landscape of shareholder proposals for the second consecutive year, with 201 proposals submitted, nearly twice the 108 proposals submitted last year. Following proxy access, the most common shareholder proposal topics in 2016 related to political and lobbying activities (103), executive compensation (73), diversity reporting (59), climate change (58) and independent board chairs (57).

Proxy Access

Proxy access provides shareholders with the ability to nominate one or more director candidates and have their nominees included in the company’s proxy statement and proxy card. The proxy access proposals submitted during the 2016 season typically requested that the board of directors allow an individual shareholder or group of shareholders holding 3% of a company’s shares for three years to nominate up to 25% of the board positions. In what might signal the next wave of shareholder proposals on proxy access, a number of companies received proposals requesting that they make certain changes to their existing proxy access bylaws. In 2016, these proposed changes included reducing ownership thresholds from 5% to 3%, removing shareholder aggregation limits, setting the number of access candidates at 25% of the directors then serving but in no event fewer than two, and removing eligibility requirements that do not apply to other board nominees.

Companies that had already adopted mainstream proxy access bylaws, or that were planning to put mainstream proxy access bylaws up for a shareholder vote, were largely successful in being able to exclude shareholder proposals from their proxy statements. The Staff of the SEC’s Division of Corporation Finance granted 38 no-action requests during the 2016 proxy season allowing companies to exclude a proposal for proxy access based on the grounds that such proposals had been substantially implemented under Rule 14a-8(i)(10). The Staff’s conclusions followed on the heels of its guidance in Staff Legal Bulletin No. 14H, which greatly circumscribed the ability of companies to exclude such proposals on the grounds that they directly conflict with a management proposal under Rule 14a-8(i)(9). Please see our prior memos reporting on the SEC’s granting of no-action relief (SEC Grants No-Action Relief on Proxy Access Proposals and Companies Accelerate Adoption of Proxy Access as SEC Continues to Grant No-Action Relief).

Although the average support for proxy access proposals declined to 49% in 2016 compared to 55% in 2015, shareholder proposals received majority support at 27 of the 58 companies at which the matter was put to a vote. Largely in response to the successful campaign initiated at the outset of the 2015 proxy season and spearheaded by the New York City Comptroller, a growing number of companies have adopted proxy access bylaws, either voluntarily or as a result of actual or threatened shareholder proposals. Approximately 48% of the Fortune 100 and 37% of the S&P 500 now have some form of proxy access bylaw, up from only five companies in the S&P 500 prior to 2015.

Other Proposals

Shareholder proponents were much less successful in garnering majority support for proposals on other topics. As in prior years, many submitted proposals were not voted upon because they were withdrawn following discussions with the company or excluded pursuant to the SEC’s no-action letter process. The Staff granted 143 (68%) of the no-action requests submitted during the 2016 proxy season, compared to 130 (61%) requests granted during the 2015 proxy season. Of the proposals that actually went to a vote at Russell 3000 companies, the following table provides information on the types of proposals that received significant voting support in 2016.

To date, none of the 2016 proposals relating to an independent board chair or executive compensation matters has received majority support. Only six environmental and social proposals have received majority support in 2016. The social proposals that passed related primarily to reporting on diversity, gender pay equality and workplace inclusion. As in prior years, proposals relating to climate change (58) were the most common type of environmental proposal this season. One such proposal passed at an oil and gas exploration and development company. There were also increases in proposals relating to supply chain sustainability (32) and renewable energy (25) in 2016 compared to 2015; none of such proposals passed.

Going forward, and buoyed in part by the unprecedented success of the proxy access proposal campaign, we expect that shareholder activists will continue using proxy proposals with frequency in order to express concerns and attempt to shape corporate policy regarding a host of governance, shareholder rights, executive compensation, environmental and social issues.

1.   Data on shareholder proposals and voting results cover the period between October 1st and June 1st of each proxy season, and was collected by Institutional Shareholder Services.