Investors will hold boards “accountable” if they litigate over proxy access – Council of Institutional Investors

The Council of Institutional Investors (CII), the US-based association of pension funds, endowments and foundations with combined assets of more than $3trn (€2.6trn), says investors will hold company boards “accountable” if they litigate to exclude shareholder ‘proxy access’ proposals in the latest sign that the controversy over investors’ right to nominate directors is not going away.

The US shareholder proposal system has been thrown into uncertainty by a decision by the Securities and Exchange Commission (SEC) to review the process, sparked off by a ‘proxy access’ proposal filed by activist James McRitchie at retailer Whole Foods.

This eventually led to a letter
to the CEOs of proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis from corporate lobby group the Business Roundtable, which represents CEOs of leading US companies, warning that companies may have “no choice but to consider litigation” during the SEC review.

The Business Roundtable asked ISS and Glass Lewis to “exercise restraint” while the SEC considers its stance.

Now the CII has itself written to ISS and Glass Lewis, making a rare plea to them for “special scrutiny” on boards that decide to litigate or exclude conflicting proposals.In the letter to ISS’s CEO Gary Retelny and Glass Lewis’ CEO Katherine Rabin, CII Executive Director Ann Yerger says the body has never previously commented to proxy firms on company-specific voting recommendations. But, the CII has decided to provide input given the “current uncertainty surrounding shareholder-proposed proxy access proposals” and the Business Roundtable’s letter.

Yerger said the CII has had recent conversations with global institutional investors representing “trillions in equity investment” that they intend to hold some directors or the entire board accountable if “a company elects to litigate or to exclude” a non-binding proxy access shareholder proposal from its AGM agenda.

Such “gamesmanship”, Yerger writes, is “inconsistent with the purpose of the shareholder proposal rule” as well as a departure from previous, mostly “respectful dialogue” between companies and investors on governance issues.

Yerger makes the point that while there is “great controversy” over institutional investors’ reliance or otherwise on proxy firms’ recommendations, the CII’s view is that most take account of “all relevant information” when voting at company meetings.