Finding and facing proxy voters
By Anna Snider
The hunt is on
task is to predict and shape the proxy vote
Companies must focus efforts on the undecided shareholders
Investors are open to engagement – but some companies aren’t trying
season may lack the spectacle of a political election, but it is not without
drama. The issues put to shareholder votes are often simple, but some – like
contested mergers or game-changing governance reforms – can be eventful.
times of controversy, IROs find themselves acting a lot like pollsters. With
their attention trained on Wall Street, IROs are experts at gauging investor
mood. As proxy issues surface in the run-up to annual general meetings (AGMs),
IR professionals seek to determine three things: who is on management’s
side, who is against it and – most important of all – who is undecided.
corporate elections, it can be fairly easy to tell, based on voting
histories, who will and won’t uphold the management line. But even after
those sides are taken, there can still be a sizeable group of shareholders
to influence. It is this group that becomes the target of the IRO, who is
tasked with achieving a winning management vote.
is a growing awareness of the benefit of showing a history of fairness in
hearing out shareholders. While some companies still stonewall when
investors complain, others are addressing controversy head on, perhaps to
minimize ballot proposals.
invited top investors in to explain its executive pay packages. Dell started
an IR blog in response to some very sore points about its performance. And
the SEC has been pushing broader adoption of the concept of informal
dialogue via electronic shareholder forums as ‘another venue’ to share
thoughts and ideas about corporate direction.
Companies that work on building this kind of trust might find it alleviates
misperceptions that percolate into problems at proxy time. Statistics
recorded in proxy firm Georgeson’s 2007 annual corporate governance review
show this trend at work. Out of 130 resolutions submitted for establishing a
majority vote standard in director elections at S&P 1500 companies, fewer
than 30 made it onto ballots. ‘Companies are now more willing to settle
these issues behind the scenes rather than face shareholder wrath,’ notes
Georgeson president David Drake.
Sometimes, however, the proxy outcome is down to a direct pitch. So how does
an IRO make it happen? Proxy solicitors insist the approach should be just
like it is for investor roadshows and sell-side presentations, except that
companies are trying to influence voting decisions rather than buying
decisions. And with so much at stake, companies are finding they need to get
this just right.
Testing voter preferences
part of the proxy process is identifying which investors are open to
influence, and no one is better placed to do this than the IRO who interacts
with shareholders on a daily basis. The more the company has engaged with
shareholders, the easier it is. But whether communication has or hasn’t been
established, there is a script to follow.
first step is to analyze the investor base. Many companies create a
spreadsheet listing their top institutional shareholders, their holdings and
notes on whether they are index, growth or value investors. It’s not
necessarily obvious what their leanings are, but the main goal for the IRO
is to go after those who are undecided or who vote on a case-by-case basis.
information-gathering requires digging. Some institutional funds publish
their voting policies on their websites; others vote down the line with the
major proxy advisory firms. IROs can call the portfolio managers handling
the fund, but they may not answer direct inquiries. ‘Most are pretty strict
with their non-disclosure policies,’ explains Paul Schulman, executive
managing director of the Altman Group.
assistant comptroller for pension policy, admits he’s not revealing. ‘We are
open to inquiries from external proxy services, but prefer to hold our votes
confidential until a company’s annual meeting is held,’ he says.
be a challenge just to locate the proxy voter. While the portfolio manager
might vote the shares, sometimes proxy voting is handled in a separate area
like corporate governance or compliance. ‘Quite frequently, the person doing
the proxy voting is difficult to find,’ says Linda Scott, a senior
consultant to Governance for Owners, which handles voting, structural
engagement and policy matters for institutional investors. ‘If they want to
make it hard, they can.’
Window of opportunity
proxy season, it’s even tougher to make contact because proxy voters may be
looking at hundreds of companies. ‘If I were trying to find that person, I’d
spend time doing it in the off season,’ Scott says. ‘Once it’s done, you
know where the function is, and it’s worth the effort.’
until the fourth quarter is too late. Meredith Miller, assistant treasurer
for policy at the Connecticut Retirement Plans and Trust Funds, says she
knows by mid-August which companies she’s going to engage on governance or
strategy issues, and starts the engagement in October or November to leave
time for filing an official shareholder proposal before a company’s proxy
statement goes out.
surveillance firms can provide dossiers on hedge funds’ activism history.
Funds’ ‘poison pen’ letters to other companies outlining their philosophies
may also be available in regulatory filings. Despite the notoriety around
some of their muckraking, however, hedge funds aren’t necessarily a threat.
‘A lot just don’t vote,’ Schulman says. Those that are active aren’t usually
shy, though. ‘I suspect, if a hedge fund cares about governance issues, you
know it,’ Scott says.
there is some shape to the potential vote, the real work begins. ‘You can go
to the institution before the proxy is filed and talk on a fully disclosed
basis,’ says Schulman. ‘Or you can go on an anonymous basis to see how it
might vote, or how you can convince it to approve what it is the company
wants to do.’
goal is to steer the shareholder from disagreement to a favorable voting
outcome without being too heavy-handed. ‘Be careful not to inundate voters
to the point where they lose sympathy,’ warns Drake.
is also the proxy advisory firm constituency. Eric Jackson, a Florida-based
investor who challenged Yahoo! and Motorola, says he regularly lobbies
RiskMetrics (formerly Institutional Shareholder Services), Glass Lewis and
Proxy Governance. Their verdicts can be extremely potent with investors, so
IROs can’t afford to ignore them.
open to any contact from the board of directors or corporate secretary any
time they want to reach out, and we’d welcome any amount of true
engagement,’ Miller says.
companies in many cases aren’t taking the opportunity. ‘Rarely do we get
calls from companies trying to determine how we will vote on management
proposals,’ Miller continues. ‘Generally, companies enlist proxy services
for that purpose. However, over the last few years, I have noticed a sharp
decline in the number of calls from these services.’
Essentially, unhappy investors are really looking for some sense of being
heard, especially by a board member; that can go a long way when
shareholders mull over whether to launch a ‘vote no’ campaign against a
director. Even if there is nothing the IRO can do to change a voter’s mind,
the polling is still important: it fulfills the role of a shareholder
perception study, the results of which are often of intense interest to
management and the board.
© copyright 2007 Cross Border Ltd