August 27, 2011
Increased Support for Shareowner Proposals in 2011
by Robert Kropp
Reports on 2011 proxy season by ISS and Ernst & Young reveal that shareowner support for social and
environmental proposals continues to grow.
2011 was the first proxy season in which companies were required to provide advisory votes on
executive compensation. Corporate governance advocates, mindful of the fact that annual compensation for CEOs at S&P 500 companies
increased by 35% in 2010, might well find themselves agreeing with James McRitchie of CorpGov.net, who told SocialFunds.com in
June, "2011 could be a watershed year if next year people look back and wonder why the hell they
didn't do anything."
Over 90% of executive compensation packages proposed by
management were supported by shareowners in 2011.
On the other hand, as reports by Institutional
Shareholder Services (ISS) and Ernst & Young reveal, shareowners overwhelmingly supported annual votes on
say-on-pay instead of the option of every three years. According to ISS, annual votes had received
"majority (or plurality) support at 1,792 companies in the Russell 3000 index, as compared to
triennial votes, which won the greatest support at 412 companies."
The call for annual
votes was publicly supported in February by a coalition of 39 institutional investors, led by Walden Asset Management, which stated
that an annual vote is "central to proper shareholder oversight."
Several other votes
relating to corporate governance, including board declassification, a majority voting standard, an
independent board chair, and reporting on political spending, received more than 30% of shareowner
In its report, Ernst & Young also noted higher levels of engagement and
communication between companies and investors. As a result, the report states, "Much more activity
has stayed largely behind the scenes with settlement agreements often providing the dissident with
one or more board seats."
Both reports indicate that support among shareowners for social
and environmental resolutions. According to ISS, "There was a 20.6 percent average approval rate
for these proposals, the first time this support level had reached the 20 percent mark."
"Five proposals received a majority of votes cast, a new record," the report continued. The
resolutions gaining majority support addressed sustainability reporting, sexual orientation and
gender identity, refinery safety procedures, political contributions, and risk management relating
to coal combustion waste.
Ernst & Young surmised that "increasing voter support and
investor attention on certain issues indicates to some extent why companies may be open to reaching
an agreement with shareholders." The report provides as an example resolutions addressing hydraulic
fracturing; of nine proposals on the issue, four were withdrawn. The remaining five resolutions
each gained more than 40% support.