Some Firms Resist Handing Over Keys to the Boardroom
By Joann S. Lublin
Several big businesses, including International Business Machines Corp. and Charles Schwab Corp., are resisting investors' demands for greater boardroom clout ahead of this year's annual shareholder meetings.
Those firms oppose so-called proxy access, which grants shareholders the right to list board candidates on ballots -- giving them greater power to oust directors and influence corporate strategy.
This governance change has been embraced by 408 U.S. companies, according to ISS Corporate Solutions, a unit of Institutional Shareholder Services, a major proxy-advisory firm. Nearly all such firms made the change in the past few years.
About 58% of S&P 500 companies have adopted proxy access, according to ISS. That is up from about 21% in early 2016 and about 1% in 2014.
In coming years, virtually every company will have to decide whether to "give shareowners a voice in director elections or risk investors' ire," said New York City Comptroller Scott M. Stringer, who manages $170 billion in pension funds. He launched a drive in 2015 to persuade dozens of companies to adopt or improve proxy access. An influential bloc of public-pension funds in various locales has supported the initiative.
Since December, companies such as Texas Instruments Inc., Phillips 66 and Consolidated Edison Co. have agreed to give investors the keys to their boardrooms. All three acted after New York City pension funds submitted proxy-access measures for the companies' 2017 annual meetings. Thirteen of 18 such resolutions backed by the Stringer campaign won majority support at annual meetings last year.
Companies typically change their corporate bylaws so owners holding at least 3% of their shares for at least three years can propose a significant portion of board members.
Other big businesses fiercely oppose the idea, however. At IBM, proxy access would undercut the board's role "in evaluating director nominees, " the computing giant said in its latest proxy statement. And special-interest groups could "promote their own agendas, potentially at the expense of the long-term interests of stockholders," the statement continued.
IBM investors vote on proxy access for the first time at the company's annual meeting next week. The governance proposal is nonbinding. IBM's board implemented similar advisory measures at least four times since 2004 after they won majority support, an IBM spokesman said.
Charles Schwab also dislikes proxy access. The shareholder resolution "risks disruption in unforeseen ways," the discount brokerage said in its latest proxy. "Contested director elections could occur every year, leading to high turnover [and] inexperienced directors with insufficient knowledge."
If proxy access passes at Schwab's May 16 annual meeting, directors will consider what is in shareholders' best interest, a company spokeswoman said.
Big asset managers are championing the access efforts, too. TIAA did a separate letter-writing campaign to its top 100 U.S. holdings in 2015 and urged those companies to improve the ability of investors to nominate directors. More than two-thirds have adopted proxy access, said a spokeswoman for Nuveen, TIAA's investment management arm.
So far, just one investor has taken advantage of improved access to corporate boardrooms -- without success. Activist firm Gamco Investors Inc. nominated a director for National Fuel Gas Co. ahead of its 2017 annual meeting, but withdrew the candidate after National Fuel said certain activist shareholders can't use its proxy-access bylaw.
Gamco founder Marco Gabelli couldn't be reached for comment.
Write to Joann S. Lublin at [email protected]