According to recently released data from The Conference Board (in collaboration with FactSet), Proxy Voting Analytics (2009–2013), the number of shareholder proposals filed in 2013 increased from 2012. For example:

Although requests for no-action relief also increased in number, the SEC staff was less likely to allow companies to exclude proposals from the proxy statement. This may reflect growing sophistication on the part of shareholders in formulating their proposals. The percentage of proposals omitted based on no-action relief declined from:

The percentage of proposals that were withdrawn increased significantly, indicating company success in negotiating with proponents. For example:

In good news for companies, the percentage of proposals that received majority support from shareholders was the lowest in five years and shareholder opposition to director re-election (as indicated by withhold and against votes) declined.

Other trends apparent in the 2013 proxy season include:

Social and environmental proposals accounted for an increasing proportion of shareholder proposals. While they continue to achieve relatively low levels of support, issues relating to human rights, sustainability reporting and disclosure of political spending and lobbying activity are slowly gaining interest from shareholders. Political spending and lobbying proposals comprised nearly 40% of social and environmental policy proposals in 2013. Support was generally higher for proposals seeking more disclosure. Proposals asking the board to adopt a policy prohibiting or limiting political spending generally received lower levels of shareholder support.

For a review of publicly available political contributions policies, see Article, Market Roundup: Political Contributions Policies.

Shareholders expressed strong support in the 2013 proxy season for executive compensation programs through their say on pay votes. Shareholders approved approximately 98% of management’s say on pay proposals. The average level of shareholder support was also high, with over 75% of companies obtaining shareholder support of 90% or more. While a negative Institutional Shareholder Services Inc. (ISS) vote recommendation was associated with on average a 30% lower favorable vote, only approximately 17% of companies that received a negative ISS vote recommendation failed to obtain a majority of votes cast.

Key factors that impacted negative proxy advisor recommendations and low shareholder support for say on pay include:

Most companies that failed the 2012 say on pay vote achieved support in 2013, often with votes in favor of 90% or more. Success in reversing the vote outcome was generally associated with a disclosed shareholder outreach effort and changes to the executive compensation program. Shareholder votes were also sensitive to improvements in total shareholder return.

Since the advent of the mandated say on pay vote, shareholders have brought fewer proposals on compensation-related matters and those proposals have received relatively low levels of support. In 2013, compensation-related shareholder proposals focused on:

None of these shareholder proposals received a majority of votes cast.

In the last two proxy seasons, a number of lawsuits were filed alleging breaches of fiduciary duties in relation to certain compensation decisions or inadequate disclosure regarding say on pay and other compensation-related proposals. Plaintiffs often sought to enjoin the company’s annual meeting pending supplemental disclosure, which presented significant settlement pressures. More recently, proxy season lawsuits have sought to challenge compensation decisions, for example alleging that the company has failed to meet Internal Revenue Code Section 162(m) requirements, resulting in several companies rescinding certain equity award grants.

Issues relating to shareholders’ rights will likely continue to be a focus of 2014 shareholder proposals, including:

In the governance area, companies should expect shareholder proposals on:

In the social and environmental areas, companies should expect shareholder proposals on:

The 2014 proxy season will be the first in which ISS applies its policy of recommending against directors where the board did not substantially implement a shareholder proposal that received a majority of votes cast in the prior year. According to ISS, this policy will be applied in a highly nuanced and company-specific way and ISS is continuing to seek input on this issue through its most recent policy outreach. To date, ISS has disclosed that it will consider, among other things:

The implementation of this new policy may cause an increase in the number of negative votes in director elections. However, some have suggested that 2014 may be the year in which the proxy advisory firms begin to lose influence, given the trend of certain large institutional investors, such as Blackrock and Vanguard, to invest in capacity to make voting decisions and to engage directly with portfolio companies.

As in prior years, ISS invited input on potential changes to its proxy voting policy guidelines for the 2014 proxy season. ISS received survey responses from 128 institutional investors (66% US-based) and 350 corporate issuers (92% US-based). The topics surveyed included:

These topics provide insight into policies that ISS may adopt or amend for the 2014 proxy season. For example, ISS may be considering adding years of service to the list of factors it considers in determining whether directors are independent. (ISS already considers tenure when evaluating director independence in several European and Asian markets.) Notably, the Council of Institutional Investors is also considering amending its corporate governance guidelines to include tenure as a factor in evaluating director independence.

ISS has said that it will make every effort to release its policy updates for 2014 in November 2013, one to two weeks earlier than in previous years.

To promote supportive and peaceful shareholder relations, companies should make early efforts to identify and address vulnerabilities, engage with shareholders and focus on director nominations and proxy disclosures. Management should be encouraged to begin the process early of engaging key investors in discussions about issues that were raised in 2013 and issues that are expected to be of interest to shareholders in 2014.

Shareholder engagement usually takes many forms, including in-person meetings and phone calls with one or more significant or influential shareholders and group meetings or conference calls with a like-minded coalition. An important component of effective engagement is paying attention to the thoughts and interests of the particular shareholder. Topics of concern may vary widely and include:

For practical tips on shareholder engagement, see Article, Shareholder Engagement: Looking Back and Planning Ahead.