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The Top Proxy Issues of 2013, and Likely 2014

IR Magazine, which covers investor relations from a global perspective, compiled a list of the top trends from 2013’s proxy season and predicted what shareholders and corporations could see in 2014. First, the top trends for 2013.

Shareholder Engagement: Not only are corporations more willing to engage with shareholders, IR Magazine says institutional investors are becoming overwhelmed with requests for meetings from the companies they invest in. Much of the desired communications surround the topic of executive compensation.

Voting Against Directors: Activist investors became more aggressive last year in forcing changes on corporate boards. A total of 19 proxy contests occurred in 2013, more than double the number in 2010. Accompanying these challenges was an increase in proposals for alternative slates of directors proposed by activist investors.

Executive Pay: The number of executive pay proposals declined to 83 last year from 116 in 2010. The majority of pay proposals made in 2013 focused on seeking to eliminate accelerated vesting of options in change-of-control (e.g., a merger) agreements and equity retention requirements for top executives.

Declassifying Corporate Boards: Ending the practice of staggering board elections was one of most popular demands among shareholder activists. Staggering when the term of each board member expires makes it more difficult for an activist investor or another party to gain control of the board and is viewed as being unfriendly to shareholders.

At the same time, proposals to redeem poison pills and for cumulative voting for directors are down. Poison pill provisions allow companies to alter their capitalization structure, often by allowing shareholders to buy additional shares, and are intended to thwart hostile takeovers. IR Magazine says many companies have either proactively redeemed these plans or chosen not to renew them. Cumulative voting allows shareholders to choose how they distribute their votes for directors.

As far as 2014 is concerned, four key themes could emerge. More attention could be paid to how a CEO’s compensation compares to that of his company’s average employee. Though companies are not required to disclose this data until 2016, Bloomberg is beginning to publish the ratios. Demands to allow shareholders to propose board candidates, subject to ownership requirements, could intensify. Shareholder activism may increase, with a company’s size or stock performance no longer shielding it from scrutiny. Finally, hedge funds may look to proxy fights to push for their interests.

Source: “Proxy Season: What’s Hot, What’s Not,” by Matthew Scott and David Bogoslaw, IR Magazine, December 11, 2013.


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