Activist shareholders continue to voice their concerns at annual meetings

Many companies are acceding to proponents’ demands before they reach a vote by shareholders

Annual shareholder meetings held by U.S. companies continue to hear from activist shareholders.

Recent data cited by the Financial Times showed that 321 big companies in 2013 were subject to 582 proposals, compared to 477 proposals following the economic crisis.

There is a “rising” amount of activism this year, with “many companies acceding to proponents’ demands before they can reach a vote,” the Financial Times reported.

The newspaper used GMI Ratings data covering eight years of shareholder activity from the U.S. companies listed in the Russell 3000 index.

Just how successful are the proposals this year? Some 55 proposals were approved at annual meetings held before the end of May, contrasted with 332 that were defeated. Social or environmental policy votes appear to be the least likely to get approved, the Financial Times reported.

It appears that shareholder proposals focusing on transparency, how companies are governed, boards are elected and executives paid may have a slightly better chance of getting approved by shareholders.

Critics argue proposals often mean frivolous use of a company’s money and employees’ time.

 

Why not charge activist investors a few thousand dollars for every proposal they offer?

SEC commissioner calls for SEC changes in dealing with activist investors

Preventing the perils of proxy season

 

In fairness, however, the Securities and Exchange Commission (SE) can restrict which proposals have to be addressed at annual meetings. Those that relate to “ordinary business operations” instead of policy are examples of exclusions. Proponents need to own or represent a shareholding of $2,000 or more. But many critics want more restrictions in place.

John Chevedden, who proposes many shareholder votes, disagrees. “Frankly, there are not enough proposals filed,” he told the Financial Times. “A lot of companies don’t get any proposals at all. Companies may have adopted some of these good governance practices but executive pay keeps going up.”

How much do the activist votes cost? The SEC a few years ago estimated the cost to assess, respond, distribute and tabulate support for a proposal at $87,000, the Financial Times said. “It is not an overwhelming burden for a corporation but it is a pain, and an unnecessary diversion of attention,” Martin Lipton, a corporate lawyer and founder of Wachtell Lipton, told the newspaper.

Other estimates say companies can spend as much as hundreds of thousands of dollars just to prepare for numerous ballots on diverse proposals from shareholders, InsideCounselreported. The process also takes time away from busy attorneys, finance specialists, accountants and others in a corporation who must review the proposals and prepare the votes.

In response, Leo Strine, the new chief justice of Delaware, has proposed that activist shareholders – every time they come up with a proposal – must fork over a filing fee of anywhere from $2,000 to $5,000 if the proposal relates to economic issues, so that they “bear some of the costs they impose.”

Writing in the Columbia Law Review, Strine suggests too that these investors “disclose more information about their own incentives so that the electorate can evaluate their motives, and provide incentives that better align the interests of money managers and ordinary investors toward sustainable, sound long-term corporate growth.” He also would like to restrict proposals to a shareholder or shareholders whose investment totaled at least $2 million – as opposed to the current limit of $2,000.

There is still another option to limit hearing from activist shareholders. Banks, for instance, are holding their shareholders’ meetings on the road. That makes it harder for many shareholders to attend. Four of the six largest U.S. banks hosted their annual meeting outside of their home state, according to a recent report from eFinancialCareers.

Contributing Author

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Ed Silverstein

Ed Silverstein is a veteran writer and editor for magazines, websites and newspapers. A graduate of Harvard's Kennedy School of Government, he has won several...

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