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Boards and their advisors survived the 2012 proxy season, but there is no rest for the weary. Already it’s time to analyze the results and plan for next year. As I look at proxy votes from this spring, as well as decisions from the Securities and Exchange Commission on proxy resolutions, I see encouraging trends.
Kenneth Daly
First, and most significant, I believe, the “ordinary business” screen for shareholder proxy resolutions showed signs of healthy evolution. Securities regulations allow companies to obtain “no action” letters from the SEC to exclude shareholder resolutions pertaining to “ordinary business.” Yet sometimes an issue that begins as ordinary business becomes a “significant policy issue” that is no longer excludable. This has happened, famously, to the proxy access issue (with a little help from Dodd-Frank, an SEC rule and two court decisions). And this year it happened to “net neutrality” at telecommunications companies. NACD has no position on the merits of these particular issues, but we do believe that shareholders should have a voice on key policy issues, as regulations state.
The SEC also continued to use “significant policy” as its guide for proxy resolutions. Despite the increase in subjects considered includable in proxies, the SEC did draw the line at auditor rotation. Numerous companies obtained no-action letters in response to a widespread proposal from the United Brotherhood of Carpenters Pension Fund that would have required audit firm rotation. The SEC rightly said that this issue is up to the board and management.
Meanwhile, relatively few companies had majority “no” votes for pay or for people. In this Year 2 of say on pay, less than 2 percent of compensation packages failed to get a positive vote—about the same as first-year results in 2011. Majority no votes for board candidates were down to 1 percent, the lowest levels of disapproval in at least five years.
Importantly, shareholders and companies negotiated behind the scenes. The NACD Blue Ribbon Commission on Board- Shareholder Communications recommended this five years ago, and it is happening more often and more successfully.
Ancient wisdom says there is a time to tear down and a time to build. We are in building season. It’s about time.
Kenneth Daly is president and CEO of the National Association of Corporate Directors.