Retail Investors Bring Big Improvements in Corporate Governance

James McRitchie

James McRitchie

Retail shareowners can improve the governance of companies throughout the economy, by filing proposals to improve governance — e.g. to ask that the CEO and chairman of the board roles go to two different people, that shareholders have rights to call special meetings, to require directors to receive support from a majority of shareholders and to require directors to run for election annually. Such proposals often receive substantial support from fellow shareholders, including  large institutional investors. In recent years their proposals at dozens of companies have focused on making it easier for shareholders to call special meetings of their companies. This is a right of shareholders to engage in rapid response, and not wait till the next scheduled shareholder meeting if things go awry — e.g. to  hold an interim meeting to elect a director to help implement a needed change, or to dismiss some members of the board of directors, or vote on important amendments to their bylaws.

According to Institutional Shareholder Services Inc. (ISS), “Since 2010, shareholders have voted on 183 proposals to adopt the right to call a special meeting, and 48 of these proposals received the support of majority of votes cast, with an average support rate of 43% of votes cast.” This trend is most pronounced among S&P 500 firms. ISS further notes: “In the S&P 500, a steadily increasing number of companies adopt the right to call a special meeting, potentially as a result of shareholder engagement and shareholder resolution filings. Since 2008, the percentage of S&P 500 firms giving shareholders the right to call a special meeting has increased from 41% to 67%.” A study of the occurrence of the right to call special meetings at companies  notes 84% of the firms that received at least one shareholder proposal asking for the right to call special meetings had granted their shareholders that right by the end of 2017.

In the 2019 proxy season the retail shareholders’ corporate governance proposals have seen strong support from investors:

  • 6 majority votes

  • 37 votes between 40% and 50%

  • 13 proposals adopted by companies without even going to a shareholder vote

  • 10 proposals adopted by companies in a process that included a shareholder vote

  • 12 proposals winning a 2018 majority vote that were adopted by the end of the 2019 proxy season.

JOHN CHEVEDDEN

JOHN CHEVEDDEN