Four key trends of the 2012 proxy season
Director opposition votes show change in voting practices
Overall, director opposition votes remain low following an increase in 2009.
It appears that the main driver behind the declining levels of opposition to director nominees is the ability of investors to vote on SOP proposals. Compensation is no longer a primary driver of opposition votes.
The following account for the vast majority of the high opposition votes:
- Poor attendance at board and committee meetings
- A board’s adoption of a poison pill in the prior year without a contingency provision for shareholder approval
- Related-party transactions (particularly for directors on key board committees)
- Failure to act on a shareholder proposal that received majority support
Vote-no campaigns targeting directors increase from 2011
Proxy season 2012 has seen an increase in vote-no campaigns over last year. Investors leading this year’s vote no campaigns generally cite a combination of factors, including:
- A lack of board responsiveness to shareholder concerns or proposals
- Executive compensation practices
- Political spending and disclosure practices
- Reputational risk
Implications of key trends: emerging challenges and priorities
The trend toward increased company-shareholder engagement and strengthened board communication practices is a positive one. However, boards face new challenges arising from this trend:
- Striking a balance between being responsive to investors and ensuring their governance practices are appropriate to the company’s specific circumstances
- Negotiating the potential pressure to maintain or build upon any increased shareholder engagement and communication efforts recently initiated
- Knowing their shareholder base and developing a communication plan regarding when and how directors will engage with shareholders
Shareholders’ increasing influence in the boardroom also increases the pressure on boards to demonstrate that board composition is dynamic, supports corporate growth priorities and addresses chief areas of stakeholder concern.
Boards that lack diversity and that are not challenging their composition and effectively communicating board assessment and development strategies could become candidates for proxy-access shareholder proposals, vote-no campaigns or other targeted reforms.