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Growing Number of Companies Adopting Proxy Access

Increasing numbers of American public companies are allowing proxy access voting to give investors a greater voice to change directors and influence corporate strategy, The Wall Street Journal reports. And the reason is clear: The move reflects businesses’ willingness to meet rising demands from key investors.

According to the WSJ, 117 companies adopted proxy access in 2015, which empowers certain investor to list competing board candidates for annual meetings. As a result, the number of S&P 500 companies allowing proxy access jumped to 21% from about 1% in 2014.

Moreover, dozens more have adopted proxy access in recent weeks, just before the deadline for investors to submit proposals. Their move follows about 40 other companies that did so in December, reported the Journal.

“The accelerated acceptance of proxy access is unprecedented,’’ Avrohom J. Kess, whose law firm, Simpson Thacher & Bartlett LLP, advises boards about governance, told the Wall Street Journal.

Certainly, investors have been unhappy about shareholders’ lack of input in the make up of the boards. A 2014 PwC study that polled directors and investors found that a whopping 94% of investors believed there are obstacles to replace underperforming directors. More than half of directors did not disagree.

The study said: “One of the most significant trends impacting governance and the board of the future is the focus on board composition and structure. Shareholders are increasingly concerned about whether boards are effective in carrying out their oversight responsibilities. Consequently, board composition, voting support for re-nominated directors, and individual director performance have become key issues.”

However, the study also found that in 2013 communication between directors and investors began to increase through proxy advisory firm.

One of the main groups that drove these new proxy access changes was pension funds, according to the New York Times.

The NYT reported: “For decades, shareholders have been shut out of any role in nominating directors. That’s been an insider’s game, and it has kept boardrooms clubby and unresponsive to investors. Some institutional investors, mostly large public pension funds, have tried to change this dynamic, pushing in recent years for what’s known as proxy access.”

Indeed, New York City Comptroller Scott M. Stringer, who has a history of pushing for proxy access, believes the portion of companies that allow proxy access could reach to half of S&P 500 , as reported in WSJ.

According to the NYT, Stringer, who oversees five city pension funds worth $160 billion, last year proposed to 68 companies to allow investors to nominate directors as long as they have held a stake of at least 3 percent for three years or more.

A majority of them put the proposal before investors, for an up or down vote for them to have an advisory voice – meaning companies did not have to follow on investors’ wishes. Investors at most of the companies voted in favor of it but it was also rejected by some investors. For example, about 49% of investors at Exxon Mobil and Community Health Systems favored the move, while a slight majority gave it the thumbs down.

The companies that adopted proxy access in 2015 comprise some of the biggest names of American business, including Apple, AT&T, Citigroup, General Electric, McDonald’s, Occidental Petroleum, and more. The WSJ reports these companies changed governance bylaws so investors who own at least 3% of the company’s shares for at least three years can propose a significant number of board members.

However, some institutional opposition to the proxy movement exists. The Times reports that some of that opposition comes from groups like Fidelity Investments and the Vanguard Group, two of the nation’s largest mutual funds. The piece states that Vanguard supports proxy access for investors who own 5% shares, which excludes “nearly all investors, even those with a long-term and substantial commitment, from making director nominations.”