“. . . . I. Positions of the Proxy Advisory Firms
A. Institutional Shareholder Services Inc. (“ISS”)
With respect to proposals related to special meetings, consistent with its position in 2015, ISS generally recommends:
- voting against proposals that restrict or prohibit a shareholder’s right to call a special meeting; and
- voting for proposals that provide shareholders with the ability to call a special meeting.
ISS prefers a 10% minimum shareholding threshold as opposed to the 20-25% threshold typically favored by management. Notwithstanding its preference, ISS recommended a vote “for” nearly all shareholder proposals in 2016, even those that proposed a threshold greater than 10%. Likewise, ISS recommended a vote “for” 11 of the 12 management proposals submitted to a vote in 2016, even though none of them proposed a threshold of 10% and one was submitted together with a competing shareholder proposal.
ISS’s recommendations suggest that its view is that some right to call a special meeting is better than no right.
Equally important is ISS’s policy on substantial implementation. If ISS determines that a proposal that received majority support was not substantially implemented by the board, ISS will recommend a vote “against” one or more directors the following year. Failure to substantially implement the proposal includes situations where the board implements the proposal at a different ownership threshold than the one proposed and/or where the board imposes significant limitations on the right. If, however, the company’s shareholder outreach efforts reveal that a different threshold is acceptable to the company’s shareholders, “and the company disclosed these results in its proxy statement, along with the board’s rationale for the threshold chosen,” ISS has indicated that it will take this into account on a case-by-case basis. ISS will similarly consider the ownership structure of the company. With regard to limitations on the right to call a special meeting, ISS finds “reasonable limitations on the timing and number per year of special meetings” to be “generally acceptable.”
ISS considers the right of shareholders to call special meetings beyond just the context of shareholder proposals. For instance, ISS takes into account the “inability of shareholders to call special meetings” as a factor in considering whether to recommend a vote against an entire board of directors where the board “lacks accountability and oversight, coupled with sustained poor performance relative to peers.”
Additionally, ISS considers the special meeting right when calculating its Governance QuickScore in both the Board Structure Pillar and the Shareholder Rights & Takeover Defenses Pillar. For the former pillar, ISS considers a unilateral board action that diminishes shareholder rights to call a special meeting to be an action that “materially reduces shareholder rights,” which could negatively impact a company’s score.
In calculating the latter pillar, ISS takes into account “whether shareholders can call a special meeting,
and, if so, the ownership threshold required.” It also considers whether there are “material restrictions” to the right, which include restrictions on timing, “restrictions that may be interpreted to preclude director elections,” and restrictions that effectively raise the ownership threshold.
B. Glass Lewis
Consistent with its position in 2015, Glass Lewis is in favor of providing shareholders with the right to call a special meeting, preferring an ownership threshold of 10-15%, depending on the size of the company, in order to “prevent abuse and waste of corporate resources by a small minority of shareholders.” In forming its recommendation, Glass Lewis also takes into account several other factors, including whether the board and management are responsive to proposals for shareholder rights policies, whether shareholders can already act by written consent and whether anti-takeover provisions exist at the company.
In addition, Glass Lewis considers the right to call special meetings an “important shareholder right” and recommends voting against members of the governance committee who hold office while management infringes upon “important shareholder rights,” such as when the board unilaterally removes such rights or when the board fails to act after a majority of shareholders has approved such rights.
II. Positions of Large Institutional Shareholders
While their current positions on special meeting proposals vary, the major institutional investors generally favor shareholders having the right to call special meetings and usually focus on a few key variables, e.g., the minimum ownership threshold associated with the right. For instance, State Street Global Advisors votes for proposals that set the threshold at 25% or less but not less than 10%, and BlackRock supports proposals that set the threshold at 25% or less but not less than 15%. Conversely, other investors, like Fidelity Management & Research Co., recommend voting for a proposal if the threshold is 25% or more. Still others, such as Vanguard, support shareholders’ right to call special meetings (for good cause and with ample representation) and will generally vote for proposals to grant the right, irrespective of the minimum ownership threshold, and against those that seek to abridge the right. Sometimes, investors’ policies take into account whether or not the company already provides for a shareholder right to act by written consent.
Source: Special Meeting Proposals
David Lindsay: HPE wants to stop a proposal to drop the threshold from 25 to 15 per cent. This article suggests the proposal has merit, and deserves shareholder support.