CalSTRS & Florida SBA Advance Shareowner Rights

CalSTRS & Florida SBA Advance Shareowner RightsTwo of my favorite funds, CalSTRS and Florida SBA whose proxy votes are reported on ProxyDemocracy, released statements to the press about accomplishments during their 2012 proxy season. Their accomplishments are impressive by any standard.

CalSTRS reports that 82 of the 95 companies it engaged seeking a majority vote standard for director elections adopted such a standard. Anne Sheehan, CalSTRS Director of Corporate Governance, said,

CalSTRS’ 86 percent success rate this year clearly indicates that companies recognize the importance of providing shareholders with a meaningful voice in the voting process. Today’s economic challenges underscore the importance of board accountability. Holding directors to a reasonable election standard is a fundamental step in maintaining the integrity of a company’s leadership and the trust of its shareholders.

Results were as follows:

  • Adoption of a majority voting standard by 34 companies, without a proposal being filed.
  • Submission of 61 proposals related to majority voting on corporate boards.
  • Withdrawal of 48 of the 61 proposals, after the companies made significant progress to implement a majority voting standard.
  • Of the 13 proposals that went to vote, nine passed with more than 75 percent average shareholder support. CalSTRS continues to engage four companies where the proposals failed despite high shareholder support.

Less than 10% of companies in the Standard & Poor’s 500 index still maintain a strict plurality standard. This is in stark contrast to the Russell 2000, an index of small to mid-sized companies, where more than two-thirds of the companies still maintain a plurality standard.

The California State Teachers’ Retirement System, with a portfolio valued at $150.6 billion as of June 30, 2012, is the largest teacher pension fund and second largest public pension fund in the United States.

The State Board of Administration of Florida (“SBA”) continued its shareowner stewardship activities and cast proxy votes that serve to protect its investments. Through a comprehensive set of corporate governance principles and proxy voting guidelines (available here), the SBA’s focus has been to take steps on behalf of its participants, beneficiaries, retirees, and other clients to strengthen shareowner rights and promote leading corporate governance practices among its equity investments in both U.S. and international capital markets. According to Ash Williams, Executive Director & Chief Investment Officer of the SBA:

The SBA’s corporate governance activities are focused on enhancing share value and ensuring that public companies are accountable to their shareowners, with independent boards of directors, transparent disclosure, accurate financial reporting, and ethical business practices and policies that protect and enhance the value of SBA investments.

In addition to proxy voting, the SBA actively engages companies throughout the year, at times maintaining a year-round dialogue and analysis of corporate governance issues and other reforms. To maximize the transparency to beneficiaries, invested companies and other investors, the SBA posts proxy voting records on its website. Highlights from the SBA’s proxy votes for the fiscal year ending June 30, 2012 included:

  • Executed votes on 9,420 (6,138 in FY 2011) public company proxies covering 84,881 (56,536 in FY 2011) individual voting items—representing a 54 percent growth rate in the number of total proxy votes.
  • The SBA’s proxy votes were cast in 81 countries, with the top 5 countries comprised of the United States (2,827 votes), Japan (1,173), Hong Kong (604), United Kingdom (426), and Canada (405).
  • Voted 77 percent “for,” 16 percent “against,” 3 percent “withheld,” 4 percent “abstained” or “did not vote” (due to various local market regulations and/or liquidity restrictions placed on voted shares).
  • Of all votes cast, 19.2 percent were against the management-recommended-vote, down from 21 percent during the same period last year.

Individual proxy topics included:

  • Votes For Director Elections 80.4% (FY2011=76.7%), Votes For External Auditor 91.3% (FY2011=90.0%), Votes For Corporate Governance Proposals 66.7% (FY2011=71%)
  • Votes For Say-on-Pay 77.4% (FY2011=74.6%), Votes For Proxy Access 100% (FY2011=n/a), and Votes For Environmental and Social Issues 22.6% (FY2011=47.8%) The SBA’s 2012 Annual Report on Corporate Governance provided an in-depth review of the say-on-pay regulation, a copy of which is available here.
  • Among all global proxy votes, the SBA cast at least one dissenting vote at 6,605 annual shareowner meetings, or 68.2 percent of all meetings.
  • Voted against 19.6% of directors, primarily due to concerns about candidate independence, qualifications, attendance, or performance that demonstrates a disregard for the interests of shareowners.
  • SBA voted in favor of all nine proxy access proposals submitted by investors during the first half of 2012.
  • The SBA supported 75 percent of shareowner resolutions asking companies to publish sustainability reports and 28.6 percent of shareowner resolutions asking companies to produce reports assessing the impact on local communities.
  • The SBA supported 91.3 percent of ballot items to ratify the board of directors’ selection of external auditor. Votes against auditor ratification are cast where the audit firm has demonstrated a failure to provide appropriate oversight, when there have been significant restatements in the financial statements, or when significant conflicts-of-interest exist.

Further background: During the first half of 2012, 41 directors at 29 companies in the Russell 3000 index failed to receive majority support by shareowners. The SBA withheld votes for 95.1 percent of these directors. 54 percent of these companies underperformed their industry peers over a three year period. Only 1 in 10 of these firms has implemented a majority voting election procedures, underscoring the need for U.S. companies to move away from the older method of plurality voting.

For other compensation-related voting items apart from SOP, over the last fiscal year the SBA supported 52.7 percent of all non-salary (equity) compensation items—while supporting 76.7 percent of executive incentive bonus plans, and 43.2 percent of management proposals to adopt restricted stock plans in which company executives or directors would participate (51.2 percent for the amendment of such plans).

The SBA prepares additional reports on corporate governance topics and significant market developments, covering a wide range of shareowner issues. Historical information, including prior reports, can be found within the governance section of the SBA’s website, available here.

To contact James McRitchie directly, please email jm@corpgov.net

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