2012 proxy season recap: activism, private ordering, and more... tuesday - june 19, 2012 webinar...
TRANSCRIPT
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2012 Proxy Season Recap:Activism, Private Ordering, and More
. . .
Tuesday - June 19, 2012
WEBINAR PRESENTATION
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SPEAKER:
Keith E. Gottfried, Partner Alston+Bird LLPThe Atlantic Building950 F Street, N.W.Washington, DC [email protected]
Keith E. Gottfried, Partner, Alston+Bird LLP, concentrates his practice primarily on shareholder activism, mergers and acquisitions, corporate governance, SEC reporting, NYSE and Nasdaq compliance and general corporate matters. Keith has significant experience defending clients against unsolicited takeover bids, proxy contests, consent solicitations and other activist campaigns initiated by activist stockholders. Keith is well known in the area of shareholder activism and has written, and/or been quoted in, numerous articles discussing the challenges presented by shareholder activism and what steps companies should take to prepare themselves. He is also a frequent panelist or presenter at conferences and seminars focused on shareholder activism and/or corporate governance. Keith received a Bachelor of Science degree in Economics from the University of Pennsylvania’s Wharton School, an M.B.A. from Boston University Graduate School of Management and a Juris Doctor degree from Boston University School of Law.
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SPEAKER:
Bradley A. Robinson, Managing Director Eagle Rock Proxy Advisors12 Commerce DriveCranford, NJ [email protected]
Bradley A. Robinson, Managing Director, Eagle Rock Proxy Advisors, is responsible for Eagle Rock’s corporate governance advisory services and assists clients in analyzing and shaping their governance policies and practices. Prior to joining Eagle Rock, Brad was a member of the research team at Proxy Governance, Inc., a proxy advisory firm for institutional investors, where he worked extensively with industry experts focusing on a range of issues, from executive compensation policy, poison pills, and private placements, to proxy contests. Brad has co-authored a study examining the voting policies and practices of major exchange-traded-funds. Previously, Brad held a position as a Series 7 and 52 licensed stockbroker. Brad received a Bachelor of Arts degree in Philosophy and Psychology from the University of Rochester and a Juris Doctor from the University of Pittsburgh Law School.
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DISCLAIMERThis presentation is intended to provide a general introductory overview of the issues discussed and is not intended to provide a complete analysis of such issues. This presentation is for educational and informational purposes only and is not intended, and should not be construed as, legal advice. Readers should not act upon the information contained in it without professional counsel. Nor is this presentation intended to establish an attorney-client relationship. This presentation may be considered attorney advertising in some jurisdictions. The hiring of an attorney is an important decision that should not be based solely upon advertisements.
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Key Observations and Trends From the 2012 Proxy Season
66 proxy fights year to date of which 13 have gone to a shareholder meeting/vote; the percentage of proxy fights where management won was 10.6% which was the lowest management win percentage in over 10 years.
49 say-on-pay failures (compared to 44 in 2011) and more failures among large companies.
First year for filing of proxy access proposals and there were 22 proxy access proposals submitted, though all but 7 were either excluded as a result of the SEC’s no-action process or withdrawn (HP and Pioneer Natural Resources).
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Key Observations and Trends From the 2012 Proxy Season
John Chevedden, Ken Steiner and Evelyn Davis were the most prolific individual shareholder filers for 2012.
Declassification of board proposals was by far the most prevalent governance proposal with 83 such proposals submitted;
Independent board chairman was another popular corporate governance proposal with 55 such proposals submitted; 39 proposals submitted relating to the call of a special meeting.
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Key Observations and Trends From the 2012 Proxy Season
Declassification of the board proposals also led the pack in getting passed, with 40 (89%) proposals passed.
Least successful in attracting votes, were proposals to allow shareholders to call special meetings, with a 21% passage rate.
Notable increase in political spending proposals with 115 such proposals submitted.
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Shareholder Activism Landscape
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
020406080
100120140
63 68 75
4256
100 108126 133
100 93
66
Proxy Fights Trend Analysis (2001 – Present)
# Fights
Source: SharkRepellent FactSet
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Shareholder Activism Landscape2012 Proxy Fights
Management11% Dissident
6%
Split3%
Pending29%Settled
27%
With-drawn24%
# Proxy Fights (Out of a Total of 66 in 2012)
ManagementDissidentSplitPendingSettledWithdrawn
Source: SharkRepellent FactSet
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Shareholder Activism Landscape(Winner Trends from Proxy Fights That “Went The Distance”)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
10
20
30
40
50
60
23 23 24
13 1422
2736
2024
147
15 13 11
8 7
10
9
15
22 12
8
4
21 2
1 3
52
2
9
1
3
2
SplitDissidentManagement
Source: SharkRepellent FactSet
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Shareholder Activism Landscape
Source: SharkRepellent FactSet
2006 2007 2008 2009 2010 2011 20120
10
20
30
40
50
15
2519
24 2227
45
Exempt Solicitation Campaigns
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Shareholder Activism Highlights 66 proxy fights year to date of which 13 have gone to a
shareholder meeting/vote. 2012 has been the “quietest” year for proxy fights since 2005
when there were only 56 proxy fights. Proxy fights continued to trend downward from 2009 and number
of proxy fights is down considerably from its high of 133 in 2009. High profile proxy fights included Yahoo / Third Point; Vulcan
Materials / Martin Marietta; Illumina / Roche Holdings; CVR Energy / Carl Icahn; Oshkosh / Carl Icahn.
7 proxy fights in 2012 where the dissident made an offer to acquire the company.
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Shareholder Activism Highlights The percentage of proxy fights where management won was
10.6% which was the lowest management win % in 10 years. 18 proxy contests settled year to date; unusual settlements
included InfuSystems Holdings where the company settled a proxy fight for all 7 board seats by giving the dissident 5 board seats.
Increased use of exempt solicitation campaigns; according to FactSet SharkRepellent, the 45 exempt solicitations announced so far in 2012 is the most in any year since FactSet began tracking such campaigns in 2006.
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Dodd-Frank “Say-on-Pay” Proposal Scorecard
97%
3%
Say-on-Pay Vote Summary (1744 Total Available Results)
PassFail
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“Say-on-Pay” Proposal Scorecard - S&P 500 (Out of a Total of 381 Available Results)
371; 97%
10; 3%
PassFail
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Dodd-Frank “Say-on-Pay” Proposal Scorecard ISS Recommendations
(Out of 1733 Total Available Vote Results)
1493, 86%
240; 14%
ISS Recommendations Summary
ForAgainst
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Say on Pay Highlights 49 say on pay failures so far in 2012 compared to 44 failures in all of
2011. Five companies failed two years in a row: (Cooper Industries, Hercules Offshore, Kilroy Realty, Nabors
Industries, Tutor Perini) More large companies with failed say on pay votes in 2012 than in
2011. Companies with failed say on pay votes included Citigroup, Big Lots,
Cooper Industries PLC, Mylan Inc., Pitney Bowes Inc., NRG Energy Inc., International Game Technology, KB Home and Nabors Industries.
Companies that recovered from failed 2011 say on pay votes and had their 2012 say on pay proposals approved included HP, ShuffleMaster, Beazer Homes USA and Jacobs Engineering.
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Say on Pay Highlights Of those companies that held a say on frequency vote in 2012
(source: SharkRepellent FactSet): 75% recommended an annual say on pay vote compared to the
55% in 2011. 23% recommended a triennial say on pay vote (once every 3
years) vote compared to 40% in 2011. ISS recommendations with respect to say on pay proposals were
approximately 86% “FOR” and 14% “AGAINST.” While ISS recommended against companies only 14% of the time, ISS recommended “AGAINST” each of the 49 companies to fail their SoP vote. This means that a negative recommendation from ISS correlates with a 20% failure rate.
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Shareholder Proposals Introduced in 2012 by Type (S&P 500)
67; 26%
60; 23%
91; 35%
36; 14%
5; 2%
By Proposal Type
Political Spending or Lobbying
Executive Compensa-tion
Corporate Governance Environmental RelatedOther Social Policy
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Corporate Governance Shareholder Proposals (Proposals Submitted)
Proxy
Acc
ess
Inde
pend
ent B
oard
Cha
irman
Right t
o Call
a S
pecia
l Mee
ting
Allow fo
r Writ
ten
Conse
nt
End S
uper
majo
rity
Vote
Requir
emen
ts
Repea
l Clas
sified
Boa
rd0
20
40
60
80
11
2313 12 11
39
3
24
5 6 6
12
1
1
0 1 1
30
7
7
215 10
2
Proposals OmittedProposals WithdrawnProposals VotedProposals Pending
Source: Institutional Shareholder ServicesData as of May. 15, 2012
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Corporate Governance Shareholder ProposalsFor Russell 3000 in 2012
21; 16%
49; 38%
36; 28%
16; 12%7; 5%
Proposals Voted
Right to Take Action by Written ConsentDeclassify Board of Di-rectorsMajority VotingCall a Special MeetingProxy Access
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Corporate Governance Proposals Highlights Declassification of board proposals was by far the most
prevalent general governance proposal with 83 proposals submitted.
Right to call a special meeting was another popular corporate governance proposal with 39 proposals submitted.
Declassification of the board proposals also led the pack in getting passed, with 40 (89%) proposals passed.
More than 2/3 of S&P 500 already have declassified boards, 89% approval rate was for all Russell 3000 companies, indicating a broadening of this proposal to a wider group of companies.
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Corporate Governance Proposals Highlights
Chairman independence proposals have increased significantly in 2012. According to ISS, 50 such proposals in the Russell 3000 in 2012, compared to 28 in all of 2011.
Companies receiving independent chair proposals in 2012 include Wells Fargo, General Electric, Edison International, Johnson & Johnson, Lockheed Martin, and Janus Capital Group, American Express, General Dynamics, PepsiCo, and Sterling Bancorp.
Source: ISS
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Corporate Governance Proposals Highlights
Least successful among the major established proposals were proposals to allow shareholders to call special meetings, with a 21% passage rate.
To contrast, chairman independence proposals remain steady in their low passage rate from last year: In 2011 the passage rate was 10% (only
three). In 2012 the passage rate has been 8% (four
with 4 more not yet voted)
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Corporate Governance Proposals Highlights
John Chevedden, Ken Steiner and Evelyn Davis were the most prolific individual filers for 2012.
Among group filers, labor in general was by far the biggest contributor, followed by pension funds (such as the NYC Pension Funds and New York State Common Retirement Fund.)
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Proxy Access Update What is Proxy Access - the notion of facilitating the ability of
shareholders to more effectively participate in the nomination and election of directors to a company’s board of directors by providing shareholders with the ability, subject to compliance with specified procedures, to include their nominees in a company’s annual meeting proxy statement and related proxy card.
Proxy Access can be implemented through a federal universal proxy access rule, such as the now judicially-vacated Rule 14a-11, a state mandate, or through “private ordering” where companies (incorporated in a state that permits or does not prohibit proxy access) adopts a bylaw implementing their own form of proxy access.
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Proxy Access Update 22 proxy access proposals submitted; only 7 have made it to vote
YTD. Of these 2 passed (Chesapeake Energy and Nabors Industries) and 5 failed.
Many proxy access proposals were omitted due to no-action letters from the SEC, most often relating to the most common form of proxy access proposal, a non-binding 1% or 100-holder rule promulgated by the United States Proxy Exchange
Companies that were able to exclude proxy access proposals included Bank of America (Rule 14a-8(c)), Goldman Sachs (Rule 14a-8(c)), Textron(Rule 14a-8(c)), Chiquita Brands(Rule 14a-8(i)(3)), MEMC (Rule 14a-8(i)(3)) and Sprint Nextel (Rule 14a-8(i)(3)).
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Proxy Access Update At Hewlett Packard, a proxy access proposal was withdrawn
by a labor fund after the company agreed to sponsor a proxy access bylaw proposal in 2013. HP’s proxy access bylaw would require be based on the
SEC’s Rule 14a-11 (3% shareholder ownership held for 3 years and shareholders would be limited to 20% of the board seats).
At Pioneer Natural Resources, Norges Bank withdrew its proxy access proposal after the board adopted a majority voting standard in the election of directors and sponsored a proposal to declassify the board
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Proxy Access Update Proxy Access Proponents:
Amalgamated Bank, Norges Bank (Norway’s sovereign wealth fund which submitted 6 proxy access), Ken Steiner, Jim McRitchie, Public pension funds (CA,NC,NYC, IL, CT), John Chevedden, and Daniel Rudewicz.
Norges Bank submitted binding bylaw proxy access proposals at Wells Fargo & Co., Staples Inc., Charles Schwab Corp. Pioneer Natural Resources Co., Western Union and CME Group Inc.
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Proxy Access Update Of the six, four Norges Bank proxy access proposals have
come to a vote in 2012: Charles Schwab, Wells Fargo, Western Union and CME
Group. All provided for 1% ownership thresholds, a 1 year holding
period and allowing shareholders to seek seats of up to 25% of the board, not modeled on the SEC’s Rule 14a-11.
All failed. Each received relatively high levels of support, in excess of
30%. Each had ISS support.
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Proxy Access Update The two companies with passed proxy access
proposals have numerous corporate governance issues; both proxy access proposals were non-binding and based on the SEC’s now-vacated Rule 14a-11 (the “3 for 3”). Chesapeake Energy –proxy access proposal
passed with a 60% vote. Nabors Industries –proxy access passed with a
56% vote.
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Proxy Access Update SEC has no immediate plans to revive or revisit its Rule 14a-11
mandatory proxy access rule. SEC Chairman Mary Schapiro, testifying before a House Financial
Services subcommittee on April 25, 2012, stated that “[i]n terms of proposing a proxy access rule and putting it on the commission agenda, we just don't have the capacity right now. We are just not going to be able to get to it."
With the SEC having no immediate plans to revisit mandatory proxy access, private ordering is expected to continue into 2013, with investors fine-tuning their proxy access proposals and addressing the issues that allowed so many proposals to be omitted pursuant to the SEC’s no-action process.
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Shareholder Proposals Related to Political Spending or Lobbing
Russell 3000
2005 2006 2007 2008 2009 2010 2011 20120
1020304050607080
26 25 27 25 2936
53
71
Political Spending Proposals
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Shareholder Proposals Related to Political Spending or Lobbying
Spike that started in 2010 has continued and accelerated. It should be noted that Citizens United was decided in 2010.
Most prevalent proposal, pre-vote, with 115 proposals as of May. 15, 2012.
The yearly average number of proposals voted on for the period 2005 – 2009 was 26.4 proposals.
In 2012, so far, there have been almost triple the average pre-Citizens United landscape.
No proposals passed this year, but 19 received 30% or higher support levels (for/against).
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Thank You!