Thesis: By forfeiting some governance to the shareholders, companies adopting proxy access will help not only themselves but also prospective investors.
The new year has brought in a new wave of large companies in favor of proxy access by investors. This issue of proxy access found its origin three years ago when the SEC attempted to mandate a requirement for proxy access but was denied in federal court. Since this case, shareholders have been forced to fight for proxy access on a company to company basis and their cause is finally gaining momentum. Proxy access allows shareholders with a minimum, company-determined stake in the company to nominate directors to the corporate board. This push towards a more democratic system will ultimately benefit both shareholders and the companies themselves.
This idea of proxy access has become more accepted as more and more companies agree to the idea. An article detailing General Electric’s adoption of proxy access gives some numbers to show the increasing acceptance of this policy:
The 17 such measures that reached a vote during annual meetings last year were approved by an average of 33.9% of shares cast, according to ISS.
By contrast, the 13 proxy-access proposals voted on during 2013 garnered an average of 32.5% support—with three getting majority endorsement, ISS added. Shareholders have submitted 93 such resolutions for 2015 annual meetings.
To summarize, in just three short years, the number of proxy access resolutions being voted on has increased from 13 to 93. Some other companies that have adopted this new policy include Citigroup, Prudential Financial, and Boston Properties Inc.
The first article hyper linked in this post best summarizes the overarching effects of such a policy when it states:
The shift could give pension funds, unions and other investors greater influence over the strategic and financial choices of U.S. companies by enabling individual or groups of shareholders to install their own directors.
I believe this new system is in the best interest of shareholders and companies alike. Companies with proxy access will become more appealing to investors for they will feel a greater sense of ownership and control over the stock they own. From the company’s standpoint, they stand to receive greater investment because investors are more likely to invest in a company in which they can have direct representation. If a stock turns in a direction in which an investor is unhappy, that investor can create active change by nominating a director.
The numbers speak for themselves. According to the article, Avrohom J. Kess, a consultant for companies considering proxy access, has predicted that 70 companies will have hopped on board by year’s end. This new system reflects the current democracy we are governed by. The ability to choose a director gives an investor more confidence in his decision to buy stock and will ultimately lead to increased investment in companies that adopt this proxy access.