Proxy access proposals do not maximize shareholder wealth, R Street study finds
WASHINGTON (July 15, 2015) – Shareholder-sponsored proxy access proposals, which have passed at 39 of the 65 companies that have voted on them in 2015, do not maximize wealth and may have led to $14.6 billion in foregone value for the companies that passed them, according to a new paper from the R Street Institute.
Often touted as promoting “shareholder democracy,” proxy access is a process that allows independent shareholders with minority stakes to nominate director candidates and have those nominees included in the packets sent to shareholders ahead of a company’s annual meeting. But 2015 has seen a surge of politically motivated proposals for proxy access from major public employee pension funds.
Most notable in this year’s proxy season have been the 75 companies targeted by New York City Comptroller Scott Stringer, with roughly half of them concentrated in the utilities and energy sectors. According to R Street’s policy study, authored by Editor-in-Chief and Senior Fellow R.J. Lehmann, investor response to the recent proposals demonstrates the dangers of empowering activist shareholders more interested in extracting concessions from companies than in fulfilling the fiduciary duties of a board of directors.
“The results support the supposition that investors do not positively value news that a firm has passed proxy access, but they did positively value news that a proxy access initiative failed,” Lehmann wrote.
Lehmann noted however that the idea of proxy access is not inherently bad.
“When wielded by the appropriate parties, proxy access does hold at least some promise to act as a counter to the myopic tunnel vision or never-ending echo chamber that bedevils some underperforming boards,” he wrote.
Toward that end, Lehmann offered up policy recommendations to counter the misapplication of proxy access, ranging from SEC clarification on conflicting proposals to preservation of state laws of incorporation to the exemption of small and medium-sized filers from proxy access initiatives.
He also recommended states and municipalities reform public employee pensions by moving toward defined contribution programs. Doing so not only would help ensure their long-term solvency, but also reduce politicians’ incentive to use pension funds as a cudgel against public companies.
“Grandstanding of the sort engaged in by New York City’s comptroller would be impossible if the authority to determine investment allocations were transferred from the politicians to the workers themselves,” Lehmann wrote.