Opinion

Alison Frankel

Shareholder spring? Not so much, new study says

By Alison Frankel
June 8, 2012

After Citigroup shareholders voted against a board-approved $15 million pay package for CEO Vikram Pandit in April, there was a lot of talk about a shareholder spring, with speculation that shareholders at a lot of other companies would seize the opportunity of advisory say-on-pay votes to express irritation with unresponsive boards. But according to a study by Davis Polk & Wardwell that was published on Thursday at the Harvard Corporate Governance and Financial Regulation Forum, shareholders have been slower to storm the barricades than the Citi vote suggested. “The proxy season,” said the study’s lead author, Richard Sandler, “hasn’t been as exciting as people thought it might be.”

According to Davis Polk, only about 2 percent of the 639 large companies to report proxy results as of May 18 failed say-on-pay votes, about the same percentage as in 2011. (A June 6 study by Semler Brossy of say-on-pay votes in the Russell 3000 found 40 of 1,594 corporations, or 2.5 percent, have failed so far this year.) Ninety percent of the large companies won at least 70 percent approval from shareholders in say-on-pay votes, according to the Davis Polk report. “The Citi rejection was embarrassing and awkward, but it hasn’t resulted in a large number of embarrassing outcomes for other companies,” Sandler said.

Nor have shareholders had much luck with proxy access proposals, according to Davis Polk. Only nine proposals made it to ballot this year. There have been three reported votes, and none of the proposals has garnered more than 33 percent approval. Where shareholders have succeeded, according to the Davis Polk report, is in forcing companies to offer shareholders a vote on getting rid of staggered boards or on auditor independence. And when shareholders vote on such proposals, the study found, they’re increasingly likely to support them.

Despite the relative lack of tumult this proxy season, Sandler said he’s certainly not telling clients to be complacent about shareholder say-on-pay votes and other proposals. “We advise clients to take these things seriously, educate themselves on where there are problems or may be problems,” he said. “The fact that for most companies it’s a non-issue doesn’t mean for most companies it’s ho-hum…. No compensation committee director wants to attract a large number of negative votes.”

In particular, Sandler said, companies are trying to be savvy about placating proxy advisers such as Institutional Shareholder Services and Glass, Lewis & Co, which, he said, “may have outsized influence.” The 15 large companies that failed say-on-pay votes as of May 18 were typically targeted by proxy advisory firms and institutional investors, according to Davis Polk. The June 6 Semler Brossy study found that ISS had recommended a vote against pay packages at 14 percent of the companies it assessed in 2012, up from 12 percent last year. Shareholder support was 30 percent lower at companies with a negative say-on-pay assessment from ISS. “Compensation committees want to know: How does ISS feel about this?” Sandler said. “Companies have gotten smarter about ISS hot-button issues.”

So even if we haven’t seen widespread shareholder revolt, he said, there’s definitely been a change in boardroom attitudes. Maybe it’s not a shareholder spring, but perhaps we can call it a shareholder thaw.

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