Alert: Operation Proxy Access Under Way

"Proxy access" rules have been a controversial issue in corporate America for quite a while now. It's proven difficult for corporate managements to acknowledge that the actual owners of their companies -- the shareholders, or people providing capital, including you and me -- should have more choices regarding who represents their interests on corporate boards of directors.

The message may be getting through, though. A few major companies seem to be coming around on the proxy access issue, whether they like it or not.

No rights, no rules
Proxy access is controversial because it allows shareholders to nominate their own candidates for seats on companies' boards of directors. Many corporate managements have been vehemently opposed to this right, even though such "access" could only occur under certain conditions. These conditions are usually pretty strict (and in some cases, still wouldn't make it exactly easy to nominate candidates).

For example, shareholders seeking access would be required to own a specific percentage of shares, and to have held those shares for a specific period of time. Depending on the company shareholders are aiming at, these percentage thresholds could prove onerous. To prove this point, last year CalPERS pointed out that the 20 largest public pension funds combined only owned 2.88% of Goldman Sachs (NYSE: GS  ) shares.

Regardless, it's an important shareholder right to fight for. It still eliminates the need for a costly proxy fight to try to throw out poorly performing incumbent board members.

The Securities & Exchange Commission (SEC) has long wrangled with the proxy access hot-button. Its attempts to allow for proxy access rules have often been thwarted by internal political problems, not to mention corporate lobbyists. Its most recent defeat occurred when the D.C. Court of Appeals claimed the agency hadn't done an adequate cost-benefit analysis of this shareholder right.

Rumblings of change
Just because the SEC has struggled to make a viable rule doesn't mean some corporate-governance-minded shareholders ever gave up fighting for the right. That's why some recent developments represent major steps in the right direction; there's a reason why shareholder rights proponents like Moxy Vote are claiming a victory now.

Hewlett-Packard (NYSE: HPQ  ) has started a possible precedent for the 2012 proxy season, announcing support for proxy access. The tech giant is the first major corporation to vow that it will propose and support the right to proxy access next year. HP will require shareholders who desire proxy access to own 3% of the company's shares for three years; they then could nominate candidates for 20% of the company's board seats (two directors).

Incidentally, Hewlett-Packard's not alone this year. Western Union (NYSE: WU  ) will also propose the right to proxy access, although its rules will be more stringent. Shareholders who want to nominate directors will have to own 5% of the shares.   

Fear of defeat
Hewlett-Packard's decision doesn't come out of nowhere. First of all, shareholder Amalgamated Bank had been making noise about proposing the allowance of proxy access at HP this year.

That means there was a major chance that Hewlett-Packard could have suffered a highly embarrassing defeat on that proposal. A similar one in 2007 actually garnered 43% approval from shareholders, and let's just say the company's shareholders are probably even more fed up now. The move to go ahead and back proxy access itself buys the company time and saves some face.

Last year, HP gained dubious recognition for being a major company to suffer a stinging rebuke in its say-on-pay vote. Beyond the Mark Hurd scandal, former CEO Leo Apotheker can be viewed as an extremely well-paid failure. HP's fumblers have made big news over the years -- and made great examples of "bad boards."

Beyond HP's high-profile move, proxy access could be an emergent trend this year. Already, Institutional Shareholder Services has compiled a list of companies that face shareholder proposals on proxy access in 2012. These include a few giant, well-known companies, like Bank of America (NYSE: BAC  ) , Wells Fargo, Goldman Sachs, Sprint Nextel (NYSE: S  ) , and Staples.

Western Union's on the list, too, so its adoption of a proxy access probably doesn't come entirely out of the goodness of its heart.

The good fight for good capitalism
It's heartening to see that even if the SEC can't quite get this rule up and running, shareholders are still fighting to convince corporate managements to do the right thing voluntarily. In a healthy system, shareholders deserve every right to nominate their own board candidates when managements' favorite board members simply aren't fulfilling shareowners' expectations.

Good capitalism requires good managers, but it requires respect for ownership, too. Proxy access is a great reminder that board members are supposed to push for shareholders' interests, and if they fail to do so, shareholders have some recourse.

Check back at Fool.com on Wednesday, Feb. 29, for Alyce Lomax's next column on environmental, social, and governance issues. In the meantime, she'll be in Costa Rica, learning about sustainable agriculture, and will share some of this knowledge in articles on her return. Pura vida!

Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Bank of America, Staples, and Wells Fargo, as well as having created a covered strangle position on Wells Fargo. Motley Fool newsletter services have recommended buying shares of Western Union, Staples, and Goldman Sachs, as well as writing a covered straddle position in Western Union. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (17)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 17, 2012, at 8:03 PM, dmawhinney wrote:

    My Daddy told me that if I didn't like the management, sell the stock. Great advice.

    This idea is a bad one. The last thing we need is a bunch of modern day Evelyn Davises or Gilbert Brothers able to play games with boards of directors. Or worse, well financed gadflies. The boards have more important things to do than fend off wannabees.

    "...and let's just say the company's shareholders are probably even more fed up now." Why the hell do they still own the stock?? Take a loss; cover it with a gain and move on.

  • Report this Comment On February 20, 2012, at 4:24 PM, mdk0611 wrote:

    If a group can't even get 3% in favor of proxy access then it will:

    a) Almost certainly fail to get their proposal/candidates approved, and

    b) Be highly likely to have political rather than management motivation.

    I highly doubt that any reasonable cost/benefit analysis would come down on the side of a lower threshhold.

  • Report this Comment On February 21, 2012, at 9:46 AM, sjbpa wrote:

    Thank you for your thoughts on the Proxy issue, Ms. Lomax. I am encouraged that you support understanding and participation at all levels of our financial lives.

    I understand that in Germany the corporations are required by law to have a certain numbers of employees on their boards. I would expect that would make the whole corporate process more

    apparent.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1783430, ~/Articles/ArticleHandler.aspx, 8/23/2014 7:42:51 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement