Let’s talk: governance
An early look at proxy season 2014
Our February 2014 issue of Let’s talk: governance offers an overview of emerging shareholder proposal trends in the 2014 proxy season and the broader shareholder proposal landscape.
These findings are based on Ernst & Young LLP’s proprietary corporate governance database. The data comes from proxy statement filings, SEC no-action requests, and information shared by proponents.
Many of the emerging proposal topics request enhanced disclosure to encourage companies to explore risk oversight and mitigation. Many seek to ensure that a company’s policies and practices are aligned with its publicly stated policies and goals.
Emerging shareholder proposals to watch
- Cybersecurity and consumer data protection: Recent high-profile data security breaches are making this topic a priority for some investors. However most of these incidents were made public after the shareholder proposal filing deadlines for 2014 meetings had passed.
- Corporate tax strategies: This topic re-emerged in 2014 after a few years, with a few proposals asking companies to adopt ethical principles, overseen by the board, to consider the impact of the company’s tax strategies.
- Lobbying activities: Disclosure and oversight of lobbying expenditures is the top proposal topic submitted this year, with nearly 50 submitted to companies across a wide range of size and industry.
- Impact of director tenure on independence: An emerging question among investors is whether lengthy tenure on a board impacts an individual director’s independence, and whether tenure considerations could help stimulate board refreshment.
- Methane and other greenhouse gas (GHG) emissions: A number of investors are citing new urgency around climate change issues. EY is tracking more than 40 proposals — the second most submitted proposal this year — across 10 industries asking companies to report on and/or set quantitative goals to reduce GHG emissions.
- Human rights risk assessment: Over the past two years, two new shareholder proposals focused on labor practices and human rights across the global supply chain have emerged. One proposal calls on companies to report on the company’s process for identifying and analyzing potential and actual human rights risks of company operations and supply chain. The other asks companies to provide annual, independently verifiable sustainability reports on or from their suppliers with disclosures focused on global labor practices.
- Limit access to interim proxy vote tallies: New this year are proposals to limit management’s ability to use interim vote tallies to solicit proxy votes. So far, just under 20 proposals have been submitted, and nearly all are pending no action determinations from the SEC.
The shareholder proposal landscape so far
- Filings down — Shareholder proposal submissions are down slightly compared to last year. This is partly driven by increased company-investor engagement, which is resulting in fewer proposals being filed, as well as the adoption by many large companies of governance practices that have been a mainstay of shareholder proposals over the years.
- Withdrawals up — As of 13 February, 13% of submitted proposals have been withdrawn compared to 8% for the same period last year. And, more proposals are being withdrawn as a result of agreement — over three-quarters of the withdrawals so far compared to just over half at around the same time last year.