What You Need to Know About Proxy Access in 2016

Shareholder satisfaction is more important now than ever, and the conflict between corporations and investors over accountability and communication is coming to a head in the debate over proxy access.


In today’s high stakes corporate world, shareholders are demanding more and more control over the companies in which they invest. The current cause célèbre among activist investors is proxy access, in an attempt to gain more influence in the boardroom of publicly held companies.


Proxy proponent and portfolio manager Anne Simpson told USA Today that proxy access is “very important for Board accountability,” and the issue forms a point of contention between corporate Boards and company shareholders. Going forward, it seems that proxy access will become increasingly important, and that shareholders will continue to gain more and more electoral power.


Shareholder Voices Now Louder than Ever

Investors have always been important to the companies they fund, but Nikolas P. Gilding is one businessman who has noticed a recent trend toward increased shareholder power. In a recent article for LinkedIn Pulse, Gliding cited the 2012 Thomson Reuters Extel survey, which found that the companies voted best at shareholder communication had “outperformed the broader market by 28.8% since 2007.”


It is not hard to see why activist investors and other company shareholders are passionate about proxy access, given that in the classic corporate model they’ve very little control over corporate Board decisions, and almost zero influence over the composition of the Board itself — unless they’re willing to wage costly and drawn-out elections. Obtaining the right to add candidates names to the ballot would be an “additional weapon in their arsenal to influence Board decisions,” according to Holly J. Gregory, a corporate governance lawyer at Sidley Austin LLP.


Current Tension in the Business World

Over the years, the issue of proxy access has been fraught. While shareholders push for more electoral power and warn Corporate Boards of Directors that they’re at risk of losing investor votes in upcoming elections, companies have been slow to implement or even consider proxy access.


One tactic for corporations to resist what they view as excessively large changes is by responding to shareholder pressure with their own, mitigated proposals. For example, Whole Foods’ counter-proposal to a proxy access request would allow just one shareholder, who has a 9% stake in the company, nominate candidates for the Board ballot. The legitimacy of this tactic has been questioned by shareholders, and Business Roundtable warned that companies determined to block proxy access proposals “may have no choice but to consider litigation.”


The Future of Proxy Access

This apparent deadlock has been loosening in the past few years, and now the move toward proxy access is an increasingly widespread phenomenon. In 2015, dozens of companies had to respond to shareholder pressure, and many chose to rewrite their bylaws to include proxy access in their corporate policy. In October 2015, Goldman Sachs joined the ranks CitiBank and Bank of America, allowing proxy access for its shareholders, according to the Wall Street Journal, through a proposal which would allow shareholders to nominate up to 20% of the Goldman Sachs Board.


IR Magazine cites 2015 as a record-breaking year for proxy access proposals, and the results of this year’s ISS Global Policy Survey have suggested that nearly all investors endorse some form of proxy access policy, and that 10% have already adopted a proxy access proposal or are strongly committed to future action on the issue. It’s likely that 2016 will see an even larger number of proposals from shareholders claiming their right to influence corporate Board compositions, and an increased number of corporations moving toward implementing proxy access policies until they become the new standard operating procedure for companies in just about every industry.