Lucian Arye Bebchuk, professor of law, economics and finance at Harvard Law School, director of the Shareholder Rights Project (SRP), and director of the Harvard Law School Program on Corporate Governance, is responsible for one of the more successful shareholder proposal initiatives this year.
Professor Bebchuk built a powerful collaboration among public pension funds to file shareholder proposals calling for annual director elections, overturning classified or tiered boards at under-performing corporations. Seven major pension funds and a foundation targeted 74 S&P 500 and other U.S. large-cap companies prompting them to move to annual elections of all their corporate directors.
According to Ellen Mullen writing in October 2012 for NACD Directorship, "Forty-eight boards agreed to bring declassification proposals to management, ... which account for almost 40 percent of the 124 S&P 500 companies with staggered board structures at the start of 2012. [Of that total], 33 proposals have already gone to a vote, with 27 passing resolutions to institute annual director elections. At least 15 more companies are expected to bring declassification proposals to management in the near future. Thirty-eight companies submitted and passed precatory proposals from SRP-represented investors."
A second SRP initiative begun late in the year was a petition urging the S.E.C. to adopt rules requiring public companies to disclose information about their political spending. While this initiative is far more controversial, what is noteworthy is the scale of Bebchuk's impact. His initiative generated over 300,000 comment letters to the S.E.C. And caught the attention of committee heads in both the House and Senate.
Bebchuk's impact contrasts sharply with that of diversity shareholder proposal submissions by other entities.
1. In 2012, California State Teachers’ Retirement System (CalSTRS) public pension fund stated that “We are engaging nine companies this year on Board diversity. We have already filed or co-filed proposals at 5 of the companies and will likely file at the others as their shareholder proposal due dates come up. We generally do not release the names of companies we are engaging with unless the proposal is going to be included in the proxy.”
In 2011, CalSTRS stated that they “withdrew all eight of its board diversity shareholder proposals filed during the 2011 proxy season after successfully engaging companies to consider diversity in director searches.”
Urban Outfitters and American Financial Group were two of the companies receiving CalSTRS proposals in 2011, but both received another CalSTRS board diversity shareholder proposal in 2012, suggesting the “success” of the earlier proposal was short-lived. Neither Urban Outfitters nor American Financial Group have any women directors.
The CalSTRS strategy appears to be to encourage companies to “amend their EEO policies to prohibit discrimination based on sexual orientation and gender identity” – substantially different from boardroom diversity.
2. Calvert Investment Management also is a lead proponent of diversity through shareholder proposals. Calvert stated that “Calvert filed six shareholder resolutions for the 2012 proxy season including four lead filings with Urban Outfitters, American Financial Group, Pioneer Natural Resources, and Under Armour, plus two co-filings with Discovery Communications and True Religion Apparel. Proposals with five of the six were successfully withdrawn after each company added specific considerations of diversity in race and gender to their desired director characteristics. “
Under Armour added one woman director, Brenda Piper, in July 2012. Pioneer Natural Resources has no women directors and only one woman on the executive team. True Religion Apparel has no women directors. Discovery Communications has no women directors, one woman on the corporate management team (Human Resources), four women among six business and brand management team members, and two women among seven of the international management team members.
3. Alliance Advisors LLC provided details regarding the 2012 proxy season shareholder proposals, although the word “diversity” did not merit attention among the shareholder proposals reviewed in their summary document. Urban Outfitters’ shareholder proposal went to voting (and won 38% support) as did First Solar (with 18% support). First Solar has no women directors.
Alliance Advisors also mentioned the shareholder proposals submitted, then withdrawn, by Calvert and religious orders. In addition to those already mentioned were:
Adams Resources & Energy (no women directors), Key Energy Services (two women directors), and Renal Care Group (which was bought by Fresenius Medical Care in 2006, with neither firm having any women directors).
Other sources summarized shareholder proposals, but reported no activity in the field of director diversity.
1. The law firm of Davis Polk
“Finally, as we approach the shareholder proposal season, the 2012 Proxy Monitor report examined the shareholder proposal activities at Fortune 200 companies from 2012 meetings and found that a small group of shareholders continue to sponsor the majority of shareholder proposals (36% from labor and pension funds; 31% from three individual investors and their relatives and affiliates; and 22% from activists with socially responsible agendas), with a plurality of the proposals focused on corporate political contributions and lobbying. We will likely see a similar trend for 2013 meetings.”
William Kelly, Davis Polk – firstname.lastname@example.org
2. Another law firm, Sullivan & Cromwell, LLP, similarly reported no appearance of director diversity shareholder proposals.
“2012 Proxy Season Review: Shareholder Proposals on Governance Structure Continue to Garner Strong Support and to Drive Structural Changes in 2012; Renewed Focus on Independent Chair; Proposals on Political, Social and Compensation Issues Remain Common, but Rarely Pass.” http://www.martindale.com/members/Article_Atachment.aspx?od=117954&id=1549958&filename=asr-1549960.2012.pdf
Sullivan & Cromwell LLP (July 9, 2012) - Patrick S. Brown, Los Angeles, email@example.com
3. The Pennsylvania Bar Institute presented a summary of the information from the ISS shareholder proposal database for the Public Law Institute’s
(prepared by D.F. King. & Co., Inc.). Director diversity proposals were not included among the top 10 shareholder proposals for 2012. Securities Practice Center
Securities Law Practice Center, Practicing Law Institute – Kara O’Brien
4. James Copland, writing for The Manhattan Institute’s Center for Legal Policy, reporting on the ProxyMonitor.org database also found that no director diversity proposals were considered among the leading categories of submissions for 2012.
The Manhattan Institute’s Center for Legal Policy - James Copland c/o firstname.lastname@example.org
5. Ernst & Young summarized four key trends among the 2012 shareholder submissions, none of which involved diverse director selection.
Allie Monaco Rutherford - Corporate Governance Group - email@example.com
In 2012, Institutional Shareholder Services (ISS) stated as follows, in their guideline recommendations for proxy voting:
“1a-4. Director Diversity/Competence - Board Diversity.
[ISS will recommend a ] Vote AGAINST or WITHHOLD from individual directors who:
Serve as members of the nominating committee and have failed to establish gender and/or racial diversity on the board. If the company does not have a formal nominating committee, vote AGAINST/WITHHOLD votes from the entire board of directors.”
Yet, ISS reported no recommendations against or withhold vote for any company during their 2012 season.
ISS Governance Resource Center