2015 Proxy Season Review: Proxy Access Proposals Most Significant Development of 2015; Significantly Higher ISS Support of Independent Chair Proposals Does Not Translate to Higher Votes; Board Withhold Recommendations Continue to Increase With Board Responsiveness a Key Driver in Resulting Votes

Sullivan & Cromwell LLP - July 20, 2015

This Paper summarizes significant developments relating to shareholder proposals to date during the 2015 proxy season.  Although shareholder activists pursuing strategic or management changes continue to dominate the headlines, they do not choose to wage those campaigns through shareholder proposals made under Rule 14a-8, which are addressed by this Paper, choosing instead private or public pressure, and often a threatened or actual proxy contest.  Nonetheless, the widespread governance changes brought about through successful 14a-8 proposals have played no small part in the continued growth and success of shareholder activism.
During the 2015 proxy season, proxy access has been the most significant development. Far more proposals have been made and support has been substantially stronger.  There have been 82 proxy access proposals to date in 2015, as opposed to 17 in all of 2014.  In 2015, shareholders have approved 48 proposals to date (as opposed to five for all of 2014), and the average votes cast in favor have risen to 55% from 33% in 2014.  Perhaps most significantly, modestly more restrictive management-enacted proxy access provisions apparently did not deter shareholders from proposing, and, in many cases, winning on the now standard shareholder proposal format of 3%/3-year/25% of board.

When proxy access proposals are eliminated, overall governance proposals dropped 6%, with majority election of directors and board declassification proposals in particular being proposed much less frequently than in prior years.  This decline, however, may principally reflect the previous adoption of these two governance arrangements by numerous companies.  Although ISS support for independent chair proposals increased significantly this year, based on its new approach to this proposal, average support and the number of successful proposals actually declined somewhat.  In light of the SEC’s decision to suspend no-action relief for conflicting proposals, conflicting proposals for proxy access and special meeting rights appeared in a number of proxy statements.

ISS recommendations to withhold or vote against directors increased in 2015 with notable increases in the number of withhold recommendations for a lack of responsiveness and for unilateral actions taken by the board that restricted shareholder rights (primarily through bylaw amendments), as well as for independence, compensation and overboarding issues.  Average support on advisory say-on-pay votes remained strong, and largely unchanged from prior years.

The data in this Paper incorporates shareholder proposals made at meetings held on or before June 30, 2015.  We estimate that about  415 of the S&P 500 companies had held their meetings by that date.