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Comments of Ronald M. Schneider

March 24, 2011

invited response to

March 22, 2011 Forum Report:

Inviting Comments on Board Advisor's Views of "Fifth Analyst Call"


Ronald M. Schneider, whose comments are presented below, is a Senior Vice President of Phoenix Advisory Partners, LLC, the corporate governance consulting and proxy solicitation subsidiary of American Stock Transfer & Trust Company, LLC.


Note: The printable copy of Prudential Financial's 2011 proxy statement, referenced in Mr. Schneider's comments, was made available to Forum participants by Margaret M. ("Peggy") Foran, Vice President, Secretary and Corporate Governance Officer of Prudential, who is a member of the Shareholder Forum's Policy Review Board and also of the Forum's Program Panel for "E-Meetings" communications standards.



Comments of

Ronald M. Schneider

March 24, 2011



Fifth Call Objectives, and Incremental Alternatives


Karen Kane’s comments about the proposed “Fifth Analyst Call” (“Enlightened Companies: Step Up and Co-opt the Fifth Analyst Call”) were themselves very enlightening, and touched on several significant issues.  These include equal treatment of all investors, direct communication between companies and their investors, by-passing or minimizing the influence of proxy advisor “intermediaries”, the role of directors versus management in this process, and improving the clarity of proxy disclosures.  These are issues which my firm as a provider of corporate governance and proxy advice, as well as our parent American Stock Transfer (AST), consider important to the success of our clients.


Before providing an assessment of the likelihood of the “Fifth Call” concept catching on in the US, let’s keep in mind the over-riding objective of investor engagement and disclosure, which is to help investors understand and have confidence in their company’s executive leadership, board oversight, strategies and efforts to grow shareholder value.  If this is accomplished, then rationally, companies generally should have the support of the majority of their investors for those actions requiring shareholder approval which are consistent with achieving these already-communicated and understood corporate objectives.  If and when investors lose confidence in the company’s leadership, strategies and their execution, then they naturally should make their dissatisfaction known, through dialogue as well as by withholding their voting support.


Unfortunately, the process is not entirely rational.  While informed proxy voting often requires specialized focus and resources, particularly for institutional investors owning thousands of companies, too often voting has become separated from the original investment thesis, and the (governance) tail wags the (performance) dog.


Here are some of the problems as we see them, and ways companies are addressing them:


1.       Though well-intended, continual expansion by the SEC of required proxy disclosures is leading to ever-longer proxy statements, which increasingly are not read, nor are votes cast (particularly by retail investors).  Companies often compounded this by treating the 14A simply as a required filing, and not as a communications and “selling” tool.  There is hope, however. Over the past several years and often in response to investor feedback, an increasing number of leading companies are truly embracing transparent, plain English disclosures, which we think are helping them gain critical shareholder voting support, and thus providing them with a competitive advantage.  Very recently, GE raised the bar through its innovative 4 page “Proxy Summary”, which can be viewed here.

In similar fashion, Prudential Financial continues to innovate. In their recently filed proxy, they begin by reminding investors of last year’s offer to “plant a tree” (or receive an eco-friendly tote bag) simply for voting, which they indicate resulted in 68,000 shareholders voting who did not do so the prior year – an offer they are continuing this year.  Their proxy again includes a “letter from our board of directors to our shareholders” (again signed by all members of the board), which, combined with a NEW two page “summary information” section, highlights key business accomplishments and voting items, with reference to the 10-K and proxy statement for the complete disclosure.  As previously, their proxy card prominently features a large “comments” section for shareholder feedback.  Prudential’s proxy can be viewed here.

Another proxy companies should review, which should be filed within a few weeks, is UnitedHealth Group’s, which is perennially cited as a leading example of transparency, plain English and clear navigation.  There are many other excellent examples, and we applaud these companies and their initiatives.  While companies and investors still have to deal with “disclosure and information overload”, clearly all  companies now have available an increasing range of “best in class” disclosures they can seek to emulate or apply to their unique situation, which hopefully will reduce the burden and challenge for their investors of reviewing these disclosures and voting thoughtfully.


2.       Investor reliance on third party proxy advisors such as ISS concerns companies, as they feel this one organization can unilaterally exercise an effective veto over a range of corporate actions.  In our experience, many companies overestimate the degree of proxy advisor influence over their shareholder base.  While it is true that the majority of large institutional investors subscribe to one or multiple proxy advisory services, only a minority of these automatically follow their vote recommendations.  Because many other investors arrive at the same voting decisions through their in-house guidelines and processes, it’s easy – but often wrong – to blame it all on the proxy advisor.  Still, for some companies, ISS and Glass-Lewis’ recommendations can determine whether certain proposals pass or fail.  In an effort to minimize proxy advisor influence, each year more companies are initiating engagement efforts with their top investors, developing relationships on the governance and proxy voting side of the aisle (which in the case of indexed investors is the only side of the aisle).  They are doing this OUTSIDE of proxy season, when the governance and voting people have more time to speak and meet with them.  This advanced timing also permits companies to incorporate some of the intelligence they have gained on investor hot button governance and voting issues into their proxy planning and drafting process.  Plus, companies that have developed relationships prior to the proxy season, may be more likely to have their calls answered when they need to discuss an issue during the height of proxy season.


3.       Annual shareholder meetings are losing their meaning and importance.  Many of us have attended the “five minute” annual meeting, in which little or no discussion – or voting – took place.  In response, some companies are considering abandoning the traditional meeting, and conducting “virtual” meetings. You recently covered this topic quite well, including the piece by  Jim Kristie of Directors & Boards magazine, “How to Fix the Annual Meeting” in which he collected a number of useful suggestions from various thought leaders.  My response to Jim’s request for “fixes” was: It’s not whether the meeting is “virtual” or not. Is it “virtuous” is the question. Elements of “virtuous” meetings — which technology can assist with — include: 1) expanding the dialogue in advance of the meeting, identifying and answering the real questions investors have, and 2) expanding the reach and participation of meetings via technology, in addition to the traditional “in person – whites of their eyeballs” meeting. In this environment, trying to take away a long-standing (if not consistently utilized) shareholder “right,” to attend the annual meeting in person, ask questions of senior management and the board, and both hear their responses and observe their reactions, is swimming against the tide. As for “cost,” physical meetings need not be so expensive, if conducted at company facilities, with a regularly-scheduled board meeting proceeding the shareholder meeting (as many companies do). The greater “cost” will be if the current crisis of confidence and trust is not addressed. Open, accessible shareholder meetings — in which outside directors, rather than sitting mute either on stage or in the front row, actively participate and “come alive” (beyond their two-dimensional proxy statement blurbs) — are one vehicle that can be used to greater benefit toward this end. The Directors & Boards collection of suggestions, including mine, can be viewed here, and the full feature section on "Fixing the Annual Meeting" can be viewed here.

As you can see, US companies increasingly are making efforts to accomplish many of the objectives of the Fifth Call, but through less dramatic yet perhaps more effective means. Undoubtedly a few pioneering companies will decide to conduct “Fifth Calls”.  However, those that do likely will already have put in place some of the less flashy, incremental steps discussed above, which paradoxically might make their “Fifth Call” about as exciting and enlightening as the “Five Minute Meeting”.  It would be a shame if “having or not having a Fifth Call” becomes yet another box-ticking exercise.



Ron Schneider
Senior Vice President
Phoenix Advisory Partners
110 Wall Street, 27th floor
New York, NY 10005




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