In the first finding of the 2012 proxy season, James Copland, director of Manhattan Institute's Center for Legal Policy, discovered quantitative evidence via the Proxy Monitor database that institutional shareholders appear to be relying heavily upon Institutional Shareholder Services (ISS), the institutional shareholder advisory firm, for decisions on executive compensation packages. Copland notes that most shareholder proposals thus far in 2012 are related to corporate governance, rather than executive compensation or social or political issues. Among the Fortune 200 companies to have held their annual meetings to date, the only shareholder proposals to gain majority support are those to declassify the board and to require majority voting for directors.
As evidenced by the recent Wall Street Journal article, The Corporate Disclosure Assault: Unions and liberal activists are using proxy rules to attack business political speech, the shareholder activism issue has generated widespread concern. Proxy Monitor plans to respond to that concern with up-to-date tracking and analysis of the 2012 proxy season.
In a recent op-ed, Copland expressed his concern for the increasing influence of ISS in the current season:
Since ISS's position almost certainly helped to influence the markedly different shareholder votes on pay packages, it would seem that an unintended side effect of Dodd-Frank-mandated say-on-pay votes is to give the proxy advisory firm a major "gatekeeper" role over executive pay. ISS's strengthened position might be enhanced further if institutional investors heed its newly promulgated advice to challenge management to respond whenever fewer than 70 percent of shareholders approve of board-proposed compensation packages--a position that would seem to be rather self-fulfilling given ISS's influence over the votes in the first place. Given that many of ISS's clients are labor-union pension funds and social-investing funds that may be motivated by issues other than maximizing shareholder value--and have respectively sponsored one-third and one-fifth of all shareholder proposals to date in 2012--I'll be watching the proxy advisory firm's role closely.
What else will I be watching in the upcoming annual meeting season? I'll be paying particular attention to certain classes of shareholder proposals in which union and social funds have taken a special interest:
Point of Law will be tracking the monthly Findings on ProxyMonitor.org to report on trends during this very important 2012 proxy season.