July 27, 2007
Executives and the Environment: Looking Back at Proxy Season 2007
by Anne Moore Odell
With the 2007 proxy season over, shareholders saw a jump in the number of socially responsible
proposals, with support growing for climate change proposals and accountability for executive pay.
Although not all companies have reported their proxy voting results, the 2007 proxy season is
wrapping up to be a winner for shareholders concerned about climate change. Shareholders wondering
how their money is being spent on executive pay also have showed their support for proposals asking
for more rights in helping direct CEO compensation. These issues highlighted a season where
socially responsible issues moved into the mainstream, in part, due to the rise of majority voting.
The other story from this past proxy
season is the large number of proposals that didn't get voted on. A record number for proposals
were delivered to companies and a record number of proposals were withdrawn by proponents: 1150
proposals were penned and 270 plus proposals withdrawn, according to Institutional Shareholder
Services (ISS), a provider of corporate
governance solutions to institutional investors. This huge number of withdrawals points to a new
meeting of the minds between boards of directors and shareholder activists.
More than half
of majority voting proposals were withdrawn this year; 140 proposals on majority voting were
submitted and over 90 were withdrawn. As of June 30, 50 majority vote proposals have been voted on.
Support for majority threshold voting in director elections averaged 49.3% at the 29 meetings where
results have been reported.
"We have reached the tipping point for majority voting," said
Patrick McGurn, Executive Vice President for ISS. "The question becomes, when does majority voting
trickle down to mid-cap and small-cap companies?"
As majority voting becomes the norm at
large cap companies, boards are starting to see the importance of meeting with shareholders to come
to agreements before proposals are printed up for voting. Shareholders will not support directors
who do not respond to proposals that have received majority support.
"Say on Pay"
remained a hot topic for proposals this proxy season, the first season since the SEC's new
executive compensation disclosure regulations were in effect. Shareholders are trying to connect
executive pay with corporate performance and more than 60 proposals were voted on, receiving 35.1%
support on average.
"The biggest change this year was compensation disclosure," McGurn
told SocialFunds.com. "It was a mixed bag from the investors point of view. On the good side,
there was a lot of information. On the bad side, there was a lot of information. With disclosures
running 5,000 words long or longer, investors had a lot to sift through for the proxy season."
The usefulness of the information provided on executive pay in the disclosures is something the
SEC, companies, and investors will be working on in the off-season, as investors look for ways to
understand executives' targeted goals for company earnings.
Over 40 proposals that asked
for an annual advisory vote on compensation were voted on with six resolutions withdrawn. ISS
reports that as of June 30, support for CEO pay proposals averaged 42.4% at 29 annual meetings.
Ingersoll Rand received 57% voting in favor of shareholders having a say on pay. Three other
proposals also saw majority support.
Other proposals regarding executive pay received
attention this year as well, including proposals regarding "clawback," option grant vesting,
severance packages, Supplemental Executive Retirement Plans, "golden parachutes" and executive pay
This year PROXY Governance, a proxy advisory firm
based in Vienna, VA, reports that more than 40 climate related proposals were filed, a huge leap
from last year's 27 climate-related proposals. Of these proposals 17 made it to a vote, ten more
than last year. More importantly, 19 proposals were taken off the table and withdrawn by
proponents after reaching agreement with companies.
Five climate proposals garnered votes
of more than 30%, Proxy Governance notes, compared to only one climate change proposal in 2006.
"The terms of the climate debate have changed quickly for companies in carbon-intensive
sectors--from whether climate change is occurring and requires disclosure, to whether or not a
company's awareness is translating into concrete actions--and this year's proxy season illustrates
that," said Michael Pryce-Jones, Senior Social Research Analyst for PROXY Governance. "For example
in 2005, less than 6% of GM shares were cast in favor of a proposal calling for more
climate-related disclosure. This year, a proposal asking management to publicly adopt GHG reduction
goals received 29% support."
Climate change proposals have also started to shift their
intent, from just asking companies to report on carbon emissions and produce sustainability reports
to actually asking companies to reduce greenhouse gases and transform current business practices to
further stop climate change.
"Proponents are pushing the climate debate higher. The
business community is also responding. For instance, the Business Roundtable recently called on
companies to commit to making GHG emission reductions a priority," commented Pryce-Jones.
"Votes are only one outcome for the proxy season," commented Pryce-Jones. "Many proposals are
withdrawn by proponents following agreements with companies on disclosure or other actions."
Socially responsible shareholders and boards of directors are both looking at the long-term
profitability of their companies and seeing that social and financial issues are increasingly
inter-related. This proxy season, both in constructive meetings between boards and shareholders
and in the proverbial voting booth, social issues--such as climate change, executive pay, and
political accountability--are the future financial risks.
Although looking at proxy votes
is important to understanding the paths companies are on, the numbers only tell part of the story.
Numerous conversations took place this proxy season between shareholders and companies and, with
majority voting holding boards accountable, shareholders are counting on the companies to make
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