As Joann Lublin reported in the WSJ, Nabors Owners Back Proxy Access Resolution. Shareowners finally won a proxy access proposal! As far as I’m concerned, the proposal is weak (3% stake held for 3 years) but it is a win none-the-less.
The nonbinding resolution was proposed by public-pension fund systems in five states: California, Connecticut, Illinois, New York and North Carolina. Hopefully, with this first breakthrough will come the realization that proxy access doesn’t mean the sky is falling. However, it does send a strong message, especially to companies with serious governance problems like Nabors, that at least 25% of their board members could be challenged without going to an expensive proxy fight involving solicitations.
Lubin’s article discusses some of the issues at Nabors:
Nabors stirred an outcry last year with news that Chairman Eugene Isenberg would receive $100 million in cash under his contract for relinquishing his chief executive title—even though he wasn’t leaving the company. Nabors later said the SEC was looking into perks received by company executives, such as personal flights on company jets.
In early February, Nabors said that Mr. Isenberg would waive the $100 million payment. Nabors, which is registered in Bermuda but has operational headquarters in Houston, owns the world’s largest fleet of land rigs. It also has oil-field service operations and 50 offshore rigs.
Norges Bank’s proposal, with a more reasonable threshold of 1% held for 1 year, won 32.5% of the shares voted at Wells Fargo. I think they would have done better with a nonbinding proposal that might have allowed some flexibility in adjusting their language. It is difficult to craft a proxy access proposal, especially a binding one, with only the 500 words allowed in a proposal.
Dave Monier’s proposal at Princeton National Bancorp (PNBC) followed an early model of a proposal I helped design, along with other members of the United States Proxy Exchange. It got 31% of the shares voted and had thresholds of 1% held for 2 years or 100 shareowners who have held shares for a year. Unlike other proposals, we had no overall limit on the number of proxy access nominees, so potentially the whole board could have been booted out the following year.
Several features complicated the proposal, which has since been revised and submitted to three additional companies. One problem PNBC shareowners had was that many were so angry and frustrated they waited to vote at the meeting but being relative amateurs at proxy voting, didn’t realize they needed to request and obtain an official proxy in advance of the meeting. That’s one more issue with the Voter Information Forms (VIFs) given to retail shareowners. (see Open eMail to NYSE Re Blank Votes and my petition to the SEC filed in 2009)
The defeat at PNBC was very unfortunate. The stock lost about another 20% since the meeting and now risks delisting. Hopefully, we all learned some lessons along the way. The ProxyExchange.org will continue to re-craft our model language and perhaps those who use the proposal will see the benefit of joining the organization and learning how to run their campaigns more effectively. They could have gotten a lot of guidance for $50.
Although I’m delighted to see proxy access finally pass somewhere, I fear funds will have a heck of a time trying to reach that 3%/3yr threshold AND agreeing on candidates and strategy at Nabors. That would be quite a coordinating project I’m not sure many are willing to take on. Still, it certainly represents progress. Three cheers for New York City Employees’ Retirement System, New York City Fire Department Pension Fund, the New York City Teachers’ Retirement System, and the New York City Police Pension Fund, as well as co-sponsors: State of North Carolina Equity Investment Fund Pooled Trust, the Connecticut Retirement Plans and Trust Funds, the California State Teacher’s Retirement System and the Illinois State Board of Investment.
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