As with the 2015 proxy season, ‘proxy access’ remains the headline story for the 2016 proxy season. Proxy access allows shareholders or shareholder groups owning a sufficient amount of shares for a sufficient length of time – typically 3 percent of a company’s shares for three years − to have a limited number of director candidates appear in the company’s proxy materials in direct competition with the board’s candidates. This corporate governance reform gained considerable momentum in 2015 and proponents of proxy access have built upon that momentum in the 2016 proxy season to firmly ensconce proxy access as part of the corporate governance ‘new normal’.

2015 proxy season – momentum builds

Led by the New York City comptroller’s ‘boardroom accountability project’, almost 120 proxy access shareholder proposals were submitted to companies in connection with 2015 annual meetings. The majority of those companies opposed it and recommended that shareholders reject the proposal. On the other hand, approximately 20 percent of the companies either adopted proxy access (at the proposed 3 percent ownership threshold), announced an intention to do so or agreed to submit a company 3 percent proxy access proposal for shareholder approval at the company’s 2015 or 2016 annual meeting. In addition, almost 15 percent of companies adopted or proposed a more restrictive version of proxy access, employing a 5 percent ownership threshold.

More than 60 percent of the proposals voted on at annual meetings received the support of the majority of votes cast. As a result, many companies faced the choice of implementing the majority supported shareholder proposal by adopting or proposing a 3 percent proxy access bylaw or risk being labelled as unresponsive to shareholders with the potential loss of support for the re-election of directors at 2016 annual meetings.

Jul-Sep 2016 issue

Skadden, Arps, Slate, Meagher & Flom LLP