Hodgson: Corporates beware as governance “gadflies” embrace environmental and social factors

The ‘Chevedden Group’ of US private investors spreads its wings

A recent blog post from James McRitchie, one of a group of US private investor corporate governance “gadflies” indicated that the so-called ‘Chevedden Group’ is shifting its attention to environmental and social (E&S) shareholder proposals.
It must have struck fear into the US Chamber of Commerce and the Business Roundtable, which have been campaigning for years to limit the shareholder proposal process.
It’s bad enough that McRitchie and the other members of the group – McRitchie’s wife Myra Young, John Chevedden himself and Kenneth Steiner – have been getting majority support for their governance proposals on proxy access and special meetings, what if the same things happens for their E&S proposals?
RI spoke to McRitchie – who has published the CorpGov.net portal since 1995 – to find out what was going on.
“It’s a bit of an exaggeration to say that we’ve shifted our focus from governance to environmental and social proposals,” he said. “I have about 50 proposals out there, maybe seven of them are to do with political spending transparency. And last year I had already filed some environmental proposals with As You Sow.” McRitchie noted that Chevedden was also filing ‘CPA’ resolutions.
According to Dan Carroll, Director of Programs for the Center for Political Accountability (CPA): “Combined, Mr. Chevedden and Mr. McRitchie have filed or will file 17 CPA model resolutions in the 2019 proxy season.”
I asked McRitchie what were the main focuses of his ‘G’ proposals this year. “I’ve also done a couple of proposals on share buybacks, which may not win majority support, but it is an important issue. I would have focused on one share one vote, except my friends at Northstar are focusing on that issue; though Northstar does not have very many holdings in small companies so they can’t effect change there.”

I asked if he was continuing his existing campaign to introduce sensible and practical special meeting provisions. “I’m only filing special meeting proposals where they have a requirement for 30% [of shares to call a special meeting] or higher (or 25% without written consent provisions); again trying to consider what the funds might vote for.”

On the other hand, he said: “Another thing that I’m concentrating on is supermajority provisions, because I see that BlackRock and others will vote in favour of those. Real repeal is often impossible, since they are frequently embedded in charter provisions and require not just 80% of shares voting but 80% of outstanding shares.“That’s almost impossible since broker voting was banned.”

McRitchie was one of the many proponents who submitted comments to, and presented at, the recent SEC Proxy Process Roundtable and I asked him what he thought of the recent speech by SEC chair Jay Clayton announcing that the SEC would be ‘reforming’ the process. “The analysis on resubmission thresholds by the CII [Council of Institutional Investors] did not help the situation with shareholder proposals,” he said.

“I’ve lost a lot of money in small caps because their corporate governance is so bad.”

“Their data showed it’s not going to make much difference to change the thresholds so Clayton, who is a moderate, will think, ‘Well, I can give them a bone and raise the resubmission thresholds just a little and I won’t be attacked for being the devil’.”
McRitchie complained that although poor governance is rapidly disappearing at the largest companies that is not true across the US economy. “The trouble is I don’t have a lot of small companies and that’s really where the lifting needs to be done. If I were BlackRock, I could file thousands and thousands of proposals and sort out all the small companies, just in things like majority voting for directors, declassifying boards. There are a lot of those still out there, and not just in the recesses of the Russell 3000. When I go out and talk to groups they say, well, these issues are already settled. They are settled in the S&P 500, but they’re certainly not settled with most folks. I’ve lost a lot of money in small caps because their corporate governance is so bad.”
I asked whether there was a solution to poor governance at these smaller companies, and he pointed out that SEC commissioner Robert Jackson had just made a speech saying he had a problem with inaction from the index funds and noted the Harvard paper from Lucian Bebchuk. “I recommended to Commissioner Jackson that the SEC should require real-time reporting of how index funds voted. There’s the potential of disclosing the vote in advance and having some people follow that lead. But, even if they voted right before the meeting, if that information was in a searchable database it would be very useful. At least people could see how they voted right after the meetings when the press coverage occurs.”