The Activist Investor Blog
The Activist Investor Blog
UPDATE: Troubling Proxy Access Trends
CORRECTION: We understand that Norges Bank did not propose a bylaw amendment at Princeton National Bancorp, as indicated below. MRL
Our January preview of proxy access proposals identified some “troubling” trends, in particular a significant company effort to sequester these proposals from a shareholder vote.
Since then, proxy access efforts have largely failed to achieve any meaningful change. Shareholders have prompted only one company to provide proxy access (KSW), with a couple of other possible companies coming along.
We count 24 proxy access proposals so far in 2012, with resolution on 22 of them (see the table below for a listing of all of them; apologies for the font size). Of the remaining two, shareholders have yet to vote on ones at Medtronic and at Forrest Labs. Medtronic has petitioned the SEC to allow it to exclude its proposal, with the outcome pending.
Binding or not?
Over half (14) of the proposals were advisory (“precatory”), with ten as binding bylaw amendments. All ten were submitted by one of two shareholders: Norges Bank, a Norwegian pension fund that invests in US equities (7 proposals), or Furlong Fund, a small US hedge fund (3 proposals).
Of the precatory proposals, 11 of the 14 followed a general format prescribed by the US Proxy Exchange, an activist investing forum. They came from individual investors, such as John Chevedden or Ken Steiner. Labor-connected funds proposed the other three.
We prefer binding amendments. Even though they typically require more votes, companies can’t ignore them as easily as they can advisory resolutions.
Excluded or withdrawn?
Companies succeeded in excluding eight of the proposals, including seven of the precatory proposals. The companies based the exclusion on standard SEC procedural grounds: too vague, representing multiple proposals from a single shareholder, or conflicting with another bylaw or proposal.
Shareholders withdrew five of the proposals prior to the vote. Furlong withdrew two out of the three proposals it submitted, not clear why. We elaborate on the other three withdrawn proposals below.
Up or down?
Alas, few proposals won significant investor support, depending on how one defines “significant”. The binding bylaw amendments (five total) received from 21% to 38% of the votes cast, not nearly enough to win approval.
The four precatory proposals received from 13% to 60% of the vote. Two of these four clearly failed, with 13 and 32% support. The other two won a majority - 56% at Nabors Industries, and 60% at Chesapeake Energy. Neither result should surprise anyone, given the governance troubles these two companies have experienced this year. Neither company has acted on the shareholder vote, though, at least yet.
A couple of “wins”
We deem investors the winner in two situations. At Hewlett-Packard, the company agreed to some yet-to-be-defined form of proxy access for 2013, so Amalgamated Bank withdrew its precatory proposal. And, Pioneer Natural Resources agreed to some other governance reforms (majority voting and declassified BoD), so Norges Bank withdrew its bylaw amendment.
A couple of oddities
Princeton National Bancorp really should improve its IR. Both an individual investor (David Monier) and Norges Bank submitted proposals, the former precatory and the latter binding. Norges Bank yielded and withdrew its proposal. No matter, though, since the precatory proposal won only 32% of the vote.
KSW dodged a governance bullet, too. Earlier we noted that the company sought to exclude Furlong’s bylaw amendment by adopting their own proxy access bylaw amendment. The SEC refused to allow that exclusion, so Furlong’s amendment would conflict with the company’s. No matter - Furlong’s proposal won only 21% of the shareholder vote, not nearly enough for approval.
All 24 proposals:
Monday, July 2, 2012