2012, 12:19 AM ET
By Vipal Monga and Emily Chasan
The end to a busy proxy season doesn’t mean corporate
boards are off the hook. Hoping to avoid a poor showing in next year’s
corporate-governance votes, companies already are reaching out to
their largest shareholders in what has become a year-round campaign.
Shareholders, meanwhile, are finding they have more
clout, as so-called say-on-pay votes and successful proposals by
shareholders to nominate their own candidates for corporate boards
force companies to pay more attention to their demands.
The proxy season, when most companies hold their annual
shareholder meetings, extends from April through July. This year’s was
marked by a resurgence of proposals urging companies to separate the
roles of chief executive and chairman, according to data from
investor-communications company Broadridge Financial Solutions.
Shareholders also were successful in pushing boards to
remove takeover protections, but made less headway in forcing
companies to disclose political contributions.
The biggest challenges for companies, however, were the
nonbinding say-on-pay votes, which let shareholders weigh in on
executive-pay practices, and “proxy access” requests, in which
shareholders seek the right to nominate their own board-of-directors
At pension-fund giant TIAA-CREF, which oversees $486
billion in assets, representatives of as many as five companies a week
are coming in to talk about their compensation packages and other
corporate-governance issues, says Jonathan Feigelson, general counsel
and head of corporate governance.
In the season that just ended, he says, the fund’s
managers spoke with roughly 450 companies individually, up from about
400 in 2011, and most of them wanted to discuss executive pay.
Say-on-pay votes are “creating an environment in which management and
directors are becoming more willing to speak to shareholders,” he
Other major investors have had similar experiences. The
California State Teachers’ Retirement System, a state pension fund
with $152 billion in assets under management, has spoken with more
than 100 companies this year, particularly those it didn’t support in
say-on-pay votes, says Aeisha Mastagni, investment officer at the
According to law firm Sullivan & Cromwell, 53 companies
lost say-on-pay votes this year. Although that represented only 2.4%
of all such votes taken this year, the percentage was up from 1.3% in
Among the companies whose pay practices failed to win
support from a majority of shareholders were
Chesapeake Energy Corp. and
Nabors Industries Ltd.
In an April vote, 55% of Citigroup’s shareholders voted
against CEO Vikram’s Pandit’s $14.9 million pay package. The loss
prompted the big bank to step up its efforts to placate investors.
Citigroup hired executive-compensation firm Frederic W. Cook & Co. to
advise it on a review of its executive pay. A Citigroup spokeswoman
added that the board’s compensation committee members “have been
meeting with representative shareholders to fully understand their
Paul Hodgson, chief research analyst for governance
firm GMI Ratings, says that companies realized last year that they had
to court shareholders after failing say-on-pay votes, and have beefed
up their efforts.
Hewlett-Packard Co., reacted to a 2011 loss on say-on-pay by tying
compensation for its new CEO, Meg Whitman, more closely to the
company’s performance. The technology company hired Ms. Whitman last
fall for just $1 in annual salary, but she was awarded H-P stock
options worth more than $16 million, allowing her to reap large
rewards if the stock rises.
H-P declined to comment.
“Companies have tried to address shareholder concerns
honestly, and to a fairly large degree,” says Mr. Hodgson.
Shareholders were able to put proxy-access proposals on
corporate ballots this year, subject to Securities and Exchange
Commission approval, after a U.S. appeals court last year rejected
proposed SEC rules that would have allowed big shareholders to
nominate corporate directors directly.
Companies got at least 20 such proposals, but only nine
of them came up for a vote, according to Broadridge. The SEC kept the
others off the ballot due to technicalities. But shareholders won
proxy access at Nabors and Chesapeake, which both also lost say-on-pay
Chesapeake has stepped up its outreach efforts, and “is
reviewing the overall compensation structure,” of the company says
spokesman Michael Kehs. Nabors didn’t return calls seeking comment.
Patrick McGurn, special counsel at Institutional
Shareholder Services, says shareholders are learning how to structure
their proxy-access proposals so they aren’t disqualified by the SEC,
which should increase the odds that more of them will reach
shareholders for a vote in 2013.
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