Enhancing Shareholder Democracy Through Proxy Access

Laura Campos

Laura Campos
Director of Shareholder Activities, Nathan Cummings Foundation

When the SEC released its final proxy access rule in November 2010, investors hailed the development as a significant step forward for shareholder rights. Proxy statement access, which allows investors to access a company’s proxy for the purpose of nominating director candidates, increases board accountability and responsiveness. Among other things, this can help to increase directors’ responsiveness to pressing social, environmental and governance concerns raised by shareholders.

Proxy access can also help to enhance shareholder value. A 2012 working paper from Harvard Business School, for instance, found that financial markets placed a positive value on proxy access. On a more basic level, allowing investors to more efficiently and cost-effectively nominate directors helps to enhance shareholder democracy and, where used, could result in more meaningful director elections. This in turn can help to improve overall corporate governance at companies with proxy access, something which unquestionably benefits shareholders.

Despite these benefits, a federal appeals court overturned the SEC’s proxy access rule in mid-2011, leaving investors to pursue access on a company-by-company basis. For the last several years, investors have been doing just that, filing proxy access shareholder proposals with dozens of companies.

Investors have filed several different variations of proxy access proposals, including both binding and precatory proposals. Those mirroring the SEC’s proposed ownership requirements—3 percent for 3 years—have done particularly well, leading to strong levels of investor support and, increasingly, implementation of proxy access.

Last year, Hewlett-Packard shareholders passed a management-sponsored proposal to implement proxy access following negotiations prompted by Amalgamated Bank’s submission of a proxy access proposal in 2012. Shareholders at Chesapeake Energy also overwhelming voted in favor of a management-sponsored proxy access proposal prompted by a 2012 shareholder filing.

Precatory proposals calling for proxy access also received majority support from shareholders at three companies in 2013: Verizon Communications, CenturyLink and Darden Restaurants. Verizon’s Board approved proxy access bylaw amendments in December. In doing so, it acknowledged that implementing proxy access would strengthen Verizon’s corporate governance framework. Darden, with a later annual meeting date, is still considering its response.

Going forward, shareholder efforts to achieve access can only be expected to grow.

Proxy access is now widely recognized as a corporate governance gold standard, so while companies with significant problems or governance issues may be more likely to see proposals in 2014, shareholder efforts to achieve this basic right may well extend beyond such companies.

Download Proxy Preview 2014 to find more proxy access shareholder resolutions.