Dodd-Frank Mandates Usher in Uncertainty for 2015's Proxy Season
May 4, 2015
April 15 is not only tax day in the United States but also the start of corporate America's "proxy season," when most large publicly traded companies hold annual meetings and shareholders vote on propositions introduced on proxy ballots. Among the items voted on are shareholder resolutions, which can be introduced, with some regulatory constraints, by stockholders of publicly traded companies who have held shares valued at $2,000 or more for at least one year.
The 2015 proxy season begins with significant uncertainty due to a series of recent regulatory and legal decisions:
- Under new rules, proxy advisers execute votes for client institutional investors are subject to federal proxy rules; proxy advisors must disclose business relationships that they have with a company upon which they are offering voting advice; and investment advisers are bound by fiduciary duties of care and loyalty but have some flexibility in determining how to vote their shares.
- Litigation continues to generate uncertainty about proxy rules, with companies and shareholders alike filing suit to challenge the Securities and Exchange Commission's (SEC) decisions.
- Concurrently, the SEC's Division of Corporate Finance declared that it would not permit publicly traded companies to exclude shareholder resolutions on proxy ballots, on that basis, for the 2015 season. As such, shareholders in 2015 will, in some instances, be voting on competing proposals by shareholders and management, on the same topics.
In 2010, Congress enacted the Dodd-Frank law, which mandated that companies hold annual, biennial or triennial shareholder advisory votes on executive compensation—an outcome certain shareholder activists had long sought through shareholder proposals.
Since 2010, the number of shareholder proposals related to executive compensation has declined because this issue no longer shows up as a shareholder proposal—being obviated by the Dodd-Frank rule—and because activists focused on executive-compensation issues may focus their energies on convincing companies and other shareholders through the advisory votes, rather than by introducing shareholder proposals.
Source: James R. Copland, "Recent Legal and Regulatory Changes Create Uncertain Landscape for 2015 Proxy Season: Proxy Access on the Agenda," Proxy Monitor, Spring 2015.
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