Elections are, in many ways, the lifeblood of any democracy… but anaemia quickly sets in when those voting have limited say on who the candidates actually are.
The iron supplement for shareholders trying to combat anaemia is proxy access.
Proxy access is an important mechanism that gives shareowners a meaningful voice in corporate board elections. It gives shareowners the ability to place their nominees for director on a company’s proxy card, thus avoiding the cost and logistical hurdles of sending out their own proxy cards when they are dissatisfied with a board and want to submit their own candidates for director.
Shareowner access to the proxy has been standard practice for years in many countries, including the UK and Australia. However, in the US board elections are primarily one-sided affairs with companies issuing proxy ballots that list only their slate of nominees for board seats.
Proposed SEC rule
While a 2011 lawsuit successfully struck down a proposed rule by the US Securities and Exchange Commission (SEC) allowing investors proxy access before it had ever taken effect, it is still possible for shareowners to file proxy resolutions seeking access to the proxy on a company-by-company basis. The proposed SEC rule would have allowed nominating shareowners owning 3% of outstanding shares for a period of at least three years to nominate board members who could at most represent only 25% of the board. We continue to favour this structure when evaluating shareholder proposals on the topic.
Some companies cite the disruption and risk of narrow interest gaining board seats as evidence of the dangers of proxy access.
But that is not true. Not even a little bit. The sky will not fall and revolutions will not be triggered overnight following the introduction of a proxy access mechanism.
That is because – long-term holding requirements aside – getting a nominee on the ballot is the easy part. The nominating party still needs to persuade more than half of other shareowners that the ideas of the nominee are better than those of current board members.
In addition, in non-US markets that have some form of proxy access the shareholder nomination process is rarely used.
In recent months, a wave of academic papers and institutional shareholder groups has come out expressing near universal support of the concept of proxy access. On top of that, several companies that received shareholder proposals on the topic have begun to implement the mechanism – with resoundingly positive investor feedback.
The influential Council of Institutional Investors is unequivocal in its view that “Proxy access will invigorate board elections and make boards more responsive to shareowners and more vigilant in their oversight of companies.”
Despite the headwinds, it is clear that the US market is ready for proxy access, even if regulators and companies are not. I frankly cannot think of a more appropriate engendering of the democratic process, nor a more natural – and needed – home for proxy access than in the ’Land of the Free and Home of the Brave.’
Stewardship in Switzerland enters its crucial phase