A Report on Corporate Governance and Shareholder Activism
By James R. Copland and
Margaret M. O’Keefe
About the Authors
JAMES R. COPLAND is a senior fellow at the Manhattan Institute, where he has served as director of legal policy since 2003. In those roles, he develops and communicates novel, sound ideas on how to improve America’s civil- and criminal-justice systems. He has authored many policy reports; book chapters; articles in academic journals including the Harvard Business Law Review and Yale Journal on Regulation; and opinion pieces in publications including the Wall Street Journal, National Law Journal, and USA Today. Copland has testified before Congress as well as state and municipal legislatures; speaks regularly on civil- and criminal-justice issues; has made hundreds of media appearances in such outlets as PBS, Fox News, MSNBC, CNBC, Fox Business, Bloomberg, C-SPAN, and NPR; and is frequently cited in news articles in periodicals including the New York Times, Washington Post, The Economist, and Forbes. In 2011 and 2012, he was named to the National Association of Corporate Directors “Directorship 100” list, which designates the individuals most influential over U.S. corporate governance.
Prior to joining the Manhattan Institute, Copland served as a management consultant with McKinsey and Company in New York and as a law clerk for Ralph K. Winter on the U.S. Court of Appeals for the Second Circuit. Copland has been a director of two privately held manufacturing companies since 1997 and has served on multiple government and nonprofit boards. He holds a J.D. and an M.B.A. from Yale University, where he was an Olin Fellow in Law and Economics; an M.Sc. in politics of the world economy from the London School of Economics and Political Science; and a B.A. in economics from the University of North Carolina at Chapel Hill, where he was a Morehead Scholar and recipient of the Honors Prize in economics.
MARGARET M. O’KEEFE is the project manager for the Manhattan Institute’s Proxy Monitor. Her previous employment includes executive compensation and corporate-governance consulting at Pearl Meyer & Partners. Earlier, O’Keefe worked for more than 10 years on proxyadvisory consulting, both at the Proxy Advisory Group and at Morrow & Co. She began her legal career at the Chase Manhattan Bank, where she was an associate counsel. O’Keefe is a graduate of St. John’s University School of Law and received an LL.M. in financial-services law from New York Law School.
One way shareholders exert influence over corporations is by introducing proposals that appear on corporate proxy ballots. To an unprecedented degree, a small subset of shareholders has been turning to this shareholder-proposal process to pursue social and political changes outside normal legislative and administrative channels. In 2016, a record percentage of shareholder proposals concerned social or policy issues, with, at most, an attenuated relationship to share value.
- A small group of shareholders continues to dominate the shareholder-proposal process. Six “corporate gadfly” investors2—individuals who repeatedly file multiple common shareholder proposals at a large number of companies—sponsored, along with their family members, one-third of all shareholder proposals in 2016. A plurality of all 2016 shareholder proposals (38%) were sponsored by institutional investors with an express social, religious, or policy orientation—including “socially responsible” investing funds3 that expressly concern themselves with more than just share-price maximization, policy-oriented foundations, and various retirement and investment vehicles associated with religious or public-policy organizations. Labor-affiliated institutional investors—such as funds affiliated with the American Federation of Labor–Congress of Industrial Organizations (AFL-CIO) and Teamsters’ Union and the public-employee pension funds for New York City and State—sponsored 21% of all shareholder proposals in 2016. No institutional investor without a social or policy orientation or a labor affiliation sponsored a shareholder proposal this year.
- Half of all shareholder proposals involve social or policy concerns. The 50% of shareholder proposals involving social or policy issues is up from 42% in 2015 and 39% in the broader 2006–15 period. The absolute number of social- and policy-related shareholder proposals per company is up, year-over-year. As in 2014 and 2015, the two most common classes of shareholder proposals in 2016 were those relating to the environment or to corporate political spending or lobbying—and both types of shareholder proposal were somewhat more common in 2016 than in 2015. The 2016 incidence of shareholder proposals relating to employment rights doubled, and those relating to human rights trebled, relative to 2015.
- Environmental-policy proposals have received more voting support in 2016; but most shareholders continue to vote against these proposals.
In 2016, five shareholder proposals relating to environmental issues received the support of at least 40% of shareholders, compared with only two total in all of 2006–15. The most common type of environment-related shareholder proposal—those concerning climate change or greenhouse gas emissions—on average received 26% shareholder voting support, up from 14% on average in 2006–15. A greater percentage of shareholders supported environmental-policy shareholder proposals in 2016 than in any other year dating back to 2006, though 79% of shareholders, on average, voted against environment-related shareholder proposals this year.
- For the first time, a shareholder proposal relating to increased disclosures of corporate political spending won majority support over board opposition; but the overall level of shareholder support for such proposals fell in 2016. A shareholder proposal asking Fluor to increase its disclosure of corporate spending related to politics won the backing of 52% of the company’s shareholders—the first time such a proposal won the support of a majority of shareholders at a Fortune 250 company over board opposition, dating back to 2006. Overall, however, shareholder proposals related to corporate political spending or lobbying received the support of only 22% of shareholders, down marginally from 2015 (23%).
- Aside from shareholder proposals involving proxy access or seeking to implement shareholder majority voting rules, shareholder proposals remain very unlikely to win majority support. Thirteen of 24 Fortune 250 companies that faced a shareholder proposal related to seeking “proxy access”—which would grant shareholders, given ownership and holding-period requirements, the power to nominate board directors on the company’s proxy statement—received majority shareholder support. This understates the level of shareholder support for proxy access: 10 of the 11 companies at which a majority of shareholders failed to support the proposal introduced their own proxy-access rule, either adopted by the board or as a competing proposal on the ballot. Moreover, the New York City pension funds introduced a large number of proxy-access shareholder proposals, as in 2015, but most companies adopted their own proxy-access rule and negotiated with the funds to withdraw the proposal. Apart from proxy-access shareholder proposals, only 3% of shareholder proposals received majority shareholder support; most that did sought to empower shareholder voting majorities, either by changing company bylaws so that director nominees needed to win shareholder majority support to take their seats in uncontested elections or by eliminating supermajority voting provisions from company bylaws.
Although a political-spending-related shareholder proposal won majority support in 2016, and although the percentage of shareholders supporting certain environment-related shareholder proposals has increased, most shareholders continue to vote against these proposals. Since 2006, shareholders at Fortune 250 companies have voted on 445 boardopposed shareholder proposals relating to corporate political spending or lobbying and 439 board-opposed shareholder proposals relating to environmental policy. Only one of those 884 shareholder proposals has received majority shareholder support. Thus, increasing activity on the part of certain shareholders pursuing social and policy agendas should not be confused with broad shareholder support for these activists’ pet issues.
Despite this broad shareholder opposition, shareholder activists with social or policy concerns have continued to introduce shareholder proposals with little to no chance of passage, year after year. The costs of such activity fall on the corporation—and hence other shareholders. One solution to this problem would be for the Securities and Exchange Commission (SEC) to revisit its 1976 rule forcing companies to include on their proxy ballots most shareholder proposals that involve
“substantial policy . . . considerations”—an approach publicly favored by this report’s primary author. Another idea, suggested by Yale Law professor Roberta Romano, is to force shareholder-proposal sponsors to reimburse the corporation at least some portion of the direct costs of assessing, printing, distributing, and tabulating their proposals if any proposal fails to receive majority or threshold shareholder support. A third idea, suggested by the U.S. Chamber of Commerce and other business groups in a 2014 rulemaking petition submitted to the SEC, would be for the SEC to revise its rule permitting companies to exclude resubmitted shareholder proposals if they fail to garner minimum threshold shareholder support within the preceding five calendar years.7 This report develops evidence shedding light on this third proposal:
- Of the 3,392 shareholder proposals introduced on the proxy ballots of companies in the Proxy Monitor database between 2007 and 2016 (through August 31, 2016), 1,063—31% of all shareholder proposals—were resubmissions of a preceding proposal.
- A total of 608 proposals were resubmitted at least once, and 100 were resubmitted three or more times.
- A plurality of shareholder proposals resubmitted (39%) involved social or policy concerns, as were 36% of those resubmitted three or more times.
- Were the SEC to make its baseline threshold for shareholder support 10% rather than 3%, 149 of the 608 shareholder proposals to be resubmitted at least once would not have been eligible for resubmission over a five-year window.
- Were the SEC to adopt a 33% threshold as a threshold, 215 of the 608 resubmitted proposals
We hope that the SEC will consider such evidence in light of its pending rulemaking petition.
About Proxy Monitor
The Manhattan Institute’s ProxyMonitor.org database, launched in 2011, is the first publicly available database cataloging shareholder proposals and Dodd-Frank-mandated executive-compensation advisory votes at America’s largest companies. This is the sixth annual survey principally authored by Manhattan Institute director of legal policy James R. Copland, each drawing upon information in the database to examine shareholder activism in which investors attempt to influence corporate management through the shareholder voting process.
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