Climate Change Resolutions / and Investors’ Voting — “Hurricane” Coming in 2017 Shareholder Voting?

“Stormy Weather Ahead Warning”:  Climate Change Resolutions / and Investors’ Voting — “Hurricane” Coming in 2017 Shareholder Proxy Voting Season?

Guest Commentary – by Seth DuppstadtProxy Insight Limited

The United Nations‘ consensus reached in the “Paris Agreement” (COP 21), the goal to limit global temperature rise to within 2 degrees Celsius could turn shareholder support for climate change resolutions from a squall into a powerful hurricane at U.S. energy and utility companies this proxy season. says our team at Proxy Insight.

Example cited:  The BlackRock Investment Stewardship Team’s new guidance on climate risk engagement made the possibility of a Category 5 storm conceivable — if companies aren’t responsive.

During the 2016 corporate proxy season, a particularly successful subset of shareholder-sponsored climate change resolutions — known as 2 Degree Scenario (“2DS”) proposals —  averaged 37.73 percent shareholder support:

ISSUER MEETING DATE % FOR
Devon Energy Corporation 8-Jun-16 36.06
Southern Company (The) 25-May-16 34.46
Exxon Mobil Corporation 25-May-16 38.14
Chevron Corporation 25-May-16 40.76
FirstEnergy Corporation 17-May-16 31.9
Anadarko Petroleum Corporation 10-May-16 42
Occidental Petroleum Corporation 29-Apr-16 48.99
Noble Energy Inc. 26-Apr-16 25.1
AES Corporation (The) 21-Apr-16 42.21

 

This was a notably high level of support for a first-round shareholder proposal — especially for climate change related. *

Example:  The proposal at Occidental Petroleum almost gained a majority with 48.99% of votes cast in support (not including abstentions).

Proxy Insight data show Institutional Shareholder Services (ISS) recommended For votes for all nine 2DS resolutions, while proxy advisor Glass Lewis opposed one.

The shareholder resolutions ask companies to stress test their portfolios and report on financial risks that could occur in a low-carbon economy.

Up to 17 2DS resolutions are expected to move to vote at U.S. companies in 2017 proxy voting, according to Ceres.  (Ten will be filed at companies not having these resolutions before).  The next scheduled company voting on 2DS will be at AES Corp on April 20th. A preliminary proxy indicates Duke Energy shareholders will be voting on May 4.

*excluding non-US “Strategic Resilience for 2035” proposals (2015/16)

 TOP-10 INVESTORS (AUM) MOST FREQUENTLY SUPPORTING “2DS” CLIMATE CHANGE RESOLUTIONS

Investor For Against Abstain DNV Split
Deutsche Asset & Wealth Management 100.00% 0.00% 0.00% 0.00% 0.00%
Legal & General Investment Management 100.00% 0.00% 0.00% 0.00% 0.00%
Legg Mason Partners Fund Advisor, LLC. 100.00% 0.00% 0.00% 0.00% 0.00%
AXA Investment Managers 100.00% 0.00% 0.00% 0.00% 0.00%
APG (Stichting PF ABP) 100.00% 0.00% 0.00% 0.00% 0.00%
Schroders 100.00% 0.00% 0.00% 0.00% 0.00%
M&G Investment Management 100.00% 0.00% 0.00% 0.00% 0.00%
Aviva Investors 100.00% 0.00% 0.00% 0.00% 0.00%
Canada Pension Plan Investment Board (CPPIB) 100.00% 0.00% 0.00% 0.00% 0.00%
California Public Employees’ Retirement System (CalPERS) 100.00% 0.00% 0.00% 0.00% 0.00%

Information is available at:  https://www.linkedin.com/pulse/climate-change-voting-calm-before-storm-seth-duppstadt

Proxy Insight is the leading provider of global shareholder voting analytics.

Visit www.proxyinsight.com for more information, where you can also sign up for a trial or contact Seth Duppstadt, SVP Proxy Insight Limited at: seth.duppstadt@proxyinsight.com  Telephone:  646-513-4141

Pension Fund Activists Focus on Climate Change, Diversity, Director Nomination Process — with New York City Funds in the Lead

by Hank Boerner– Chairman, G&A Institute

Leading and influential activists in the sustainable & responsible investment community are focusing on the filing of their 2015 corporate proxy ballots with ESG issues top-of-mind. Let’s take a look at the actions of the New York City (5) pension funds (with US$160 billion in Assets Under Management).

The city comptroller, Scott M. Stringer, was elected in November 2013, along with the new high-visibility mayor (Bill DeBlasio).  Under Comptroller Stringer’s direction, the fund(s) are filing proxy proposals with 75 companies to demand a greater voice in the nomination of boards of directors.  This is the characterized as “giving shareowners a true voice in how boards are elected.” .

This campaign is designed to roll out proxy access demands across the broad public company universe in the United States.  Back in the 1800s, one of the corrupt big city political bosses was William M. “Boss” Tweed.  Said Comptroller Stringer:  “The current ]corporate] election procedures would make Boss Tweed blush. We are seeing to change the market by having more meaningful director elections through proxy access, which will make boards more responsive to shareowners.  We expect to see better long-term performance across our portfolio…”

(As local point of reference, Boss Tweed of Tammany Hall was a member of Congress and director of the Erie Railroad Company and 10th National Bank.  He was convicted of corruption and died in jail in 1878.  His name is synonymous with corruption, cronyism, political back slapping.)

The NYC comptroller serves as investment advisor to, and custodian and trustee of the 5 funds, which are for city employee beneficiaries — teachers, police, fire department, board of education, city employees.

Proxy access” is the ability for owners to nominate directors in addition to — or in opposition to — the company’s slate of directors (in the proxy statement).  Comptroller Stringer wants to give shareholders with (1) 3% of shares and (2) holding the shares for 3 years the “threshold” of being able to nominate candidates for board service, up to (3) 25% of the total board membership.  Those companies not agreeing to the proposal received the NYC fund ballot initiative.

And big corporate names are involved; the resolutions are being filed at:

  • 33 carbon intensive coal, oil & gas, and utility companies (such as Duke Energy, ExxonMobil, Chevron, Apache, AEP (power), Southwestern Energy, ConocoPhilipps, Peabody Energy);
  • 24 companies with few / or no women on the board, and “little or no” racial or ethnic diversity – including eBay, Priceline, Level 3 Communications, Urban Outfitters, Alexion Pharma;
  • 25 companies that received “significant” opposition to 2014 shareholder votes (advisory, not binding) on their executive compensation plans.

In focus: :”Zombie directors”  – of 41 corporate directors receiving less than a majority vote in 2013, 40 remain on their boards.  As Comptroller Stringer described them, “unelected, but still serving…

“This is all part of what the pension fund leaders call their “Boardroom Accountability Project,” designed to call attention to as boards of directors and their perceived failure to address critical issues — climate risk, excessive compensation and lack of diversity in the board room.

Note that under “”plurality” voting in un-contested elections, a director who receives just one vote (his or hers counts if shares are owned) is re-elected…even if every other vote is cast against him.  The project seeks to have companies amend their bylaws to change that situation.

New York State Comptroller Tom DiNapoli was re-elected by an overwhelming statewide majority in November; he enthusiastically endorsed the city funds’ project (he is the sole trustee of the US$180 billion New York State Common Fund). He described the Board Accountability Project as a wake-up call to boards of directors to change the way business in the board room is done.

Also in support:  Anne Stausboll, CEO for California Public Employees Retirement System (CalPERS) — the nation’s largest public employee pension fund with US$ 300 billion in AUM.

Her colleague, Anne Sheehan, corporate governance director at the California State Teachers Retirement System (CalSTRS) termed the board accountability project “long overdue for our country,” voicing her support.  The fund has US$186 billion AUM.

This is not just a “New York City” liberal-leaning thing — voicing support for the project were other public sector fiduciaries:

  • William R. Atwood, executive director of the Illinois State Board of Investment. (US$5 billion AUM)
  • Francis X. Bielli, executive director of the Philadelphia Board of Pensions & Retirement.   (US$4.5 billion AUM)
  • Travis Williams, chairman of the Firefighters Pension System of Kansas City, Missouri (US$460 million AUM)
  • Alex Fernandez, chairman of the Miami (Florida) Firefighters Relief and Pension Fund.( US$1.5 billion AUM)

Comptroller Scott Singer explained that the U.S. Securities & Exchange Commission (SEC) first proposed “universal proxy access” (for all shareholders) back in 2003 as a “way to end the Imperial CEO,” as Enron, WorldCom and other large-caps imploded and many went out of business.  In 2010, the SEC approved a universal policy access rule in response to the financial crisis.” In a federal district court case, the rule was set aside; the SEC still allows “private ordering,” the ability for shareowners such as pension funds to file resolutions to be placed on the annual voting ballot.

And so the battle lines are being drawn for 2015 corporate engagements.  Many of the public companies named by New York City funds are seen as leaders in sustainability, responsibility and accountability.  The proxy resolutions would seem to state otherwise.

It will be interesting to see how the Board Accountability Project progresses, and how corporate boards and C-suites see the demands presented for greater “Corporate Democracy.”

The Role of Individual Investors in Prompting Governance Reform via the Proxy Process

guest commentary by Tim Smith – Walden Asset Management

We have all read a great deal about the concern that companies, the [US] Chamber of Commerce and SEC Commissioner Gallagher have about the “highjacking” of the proxy process.

Particular anger is aimed at John Chevedden, Bill Steiner  and James McRitchie who file multiple resolutions on governance reforms — like majority vote, annual election of directors, changing different classes of shares with unequal voting rights, right for shareholders to call a special meeting and separate Chair and CEO, among others.

Mr. Chevedden is criticized for some of the language in his resolution texts as well as his seeming unwillingness to change false and misleading statements in the whereas clauses . In fact, 4 companies sued him this year to block resolutions he submitted either for himself as a shareholder or for colleagues like James McRitchie.

But it seems much of the frustration is not aimed at him but at the strong positive votes for such reforms  supporting many of these proposals . On many governance issues he coordinates and files, votes are in the 30 to 40 % range AND as you will see below many get well over 50%. Few are low level vote getters.

So while questions can be raised about the style of Mr. Chevedden’s engagements, few can argue that they don’t touch a nerve and get a positive investor response .

That leaves one questioning why SEC Commissioner Gallagher sees this as an abuse and believes there should be an increase in the value of shares held for a proponent to US$200,000 or “even better $2 million.”  Of course, such a change would virtually wipe out the role of small individual investors in the proxy process.

Another way to view it is that these are valuable governance reforms being tested by individual shareholders who could certainly brush up on the facts in their whereas clauses and open up engagement with companies — but nevertheless add real value to an ongoing debate about best governance practices and actually stimulate numerous reforms by companies .

Why is a resolution filed by a major pension fund or investment firm on the same topic any more meritorious than one by an individual shareholder?

The votes seem to indicate that proxies are voted on the issue — not the proponent.

********

–Timothy Smith, Senior Vice President and Director of Environmental Social and Governance Shareowner Engagement Walden Asset Management .

Boston, MA 02108 – Tel: 617-726-7155

tsmith@bostontrust.com

********

FYI – Samples of Votes With Over 50% – Companies Receiving Resolutions from John Chevedden:

 

Costco Wholesale Corporation (COST)
Simple Majority Vote
James McRitchie
65%

Brocade Communications Systems, Inc. (BRCD)
Special Meeting Kenneth Steiner 60%

Allergan, Inc. (AGN)
Independent Board Chairman
John Chevedden
50%+

BorgWarner Inc. (BWA)
Simple Majority Vote
John Chevedden
79%

Brink’s Company (BCO)
Annual Election of Each Director
William Steiner
78%

Bristol-Myers Squibb Company (BMY)
Simple Majority Vote
Kenneth Steiner
85%

Chipotle Mexican Grill, Inc. (CMG)
Simple Majority Vote
James McRitchie
75%

Duke Energy Corporation (DUK)
Special Meeting
John Chevedden
60%

iRobot Corporation (IRBT)
Simple Majority Vote
James McRitchie
82%

PPL Corporation (PPL)
Special Meeting
William Steiner
59%

NextEra Energy, Inc. (NEE)
Simple Majority Vote
Myra K. Young
73%

Alexion Pharmaceuticals, Inc. (ALXN)
Pill
John Chevedden
91%

Ferro Corporation (FOE)
Simple Majority Vote
Kenneth Steiner
99%

Neustar Inc (NSR)
A
nnual Election of Each Director
John Chevedden
86%

Staples Inc. (SPLS)
Independent Board Chairman
John Chevedden
50%+