Volume 2, Issue 4 May 2015 VIEW FROM CALIFORNIA— CalSTRS’ ANNE SHEEHAN TENUOUS TENURE— US PENSION FUND VOTING VOTING NEWS PROXY MONTHLY www.proxyinsight.com Proxy statement Nick Dawson, Co-Founder & Managing Director, Proxy Insight Limited hareholder Activists continue at 71% and 70% of proxy contests Executive to dominate the headlines, in respectively, Vanguard and Northern Compensation Sparticular Nelson Peltz’s attempt Trust Investments only supported the has already to gain four seats on the DuPont board dissident at 13% and 24% of proxy lead to via his Trian Fund Management vehicle. contests respectively. high profile investor This follows above average opposition opposition with more at their 2014 AGM notably for A.M. BlackRock CEO, Larry Fink made a very “set to follow” Cutler who received against votes public anti-activist statement last month from key investors such as Franklin urging chief executives of the S&P 500 to be back to business as normal Resources and BNY Mellon. to stop being so nice to shareholders after the introduction last year of the and in particular resist pressure for Remuneration Policy vote every 3 years. For the 2015 vote Glass Lewis is backing short term “so-called shareholder- Centrica, ARM Holdings, HSBC and Peltz’s election, ISS is supporting both friendly steps like paying dividends and BP have all faced significant opposition Peltz and John Myers, another Trian buying back stock”. to their Remuneration Report votes. nominee and Egan Jones is backing all It seems likely that there will be many four Trian nominees. Sticking with Activism, there are others who suffer the same fate. further signs that the UK issuers are Most institutions will form their own increasingly under the microscope I am pleased to announce that we are opinion when voting at proxy contests following what is now commonplace launching our new Vote Results service and hence the support of the proxy in North America. A pretty hostile within Proxy Insight. The module voting advisers is perhaps not as campaign between Elliott and Alliance captures total shares voted – For, critical as it would normally be. Each Trust ended in an agreement however Against, Abstain etc. as disclosed by investor makes up their own mind Alliance is rumoured to have spent £3m each company after their shareholder regarding the activists as reflected in in fees to advisors to help defend them. meetings. Assuming they disclose, Proxy Insight’s data which shows a Private equity firm, Electra is next in all US issuers should be covered significant divergence of opinion. While the firing line with Edward Bramson’s together with the majority of Canadian T. Rowe Price and Deutsche Asset Sherborne Investors having another go, and UK companies. Companies in Management voted the dissident card after his failed attempt to capture the the top indices for France, Germany, firm in October last year. Switzerland, Netherlands and Australia should also be covered. While the UK issuers are Executive compensation, often a results are only available at a company increasingly controversial topic, has already lead to level at present, the next step is to under the some damaging headlines. Three top include them within our advanced Activists’ Canadian firms, CIBC, Barrick Gold search so you can see all companies microscope, and Yamana Gold have all lost their who received less than x% support for following what is now say on pay votes leading to the CEO any type of resolution. “commonplace in North of Yamana returning his special share America” units. Meanwhile in the UK, it seems Nick Dawson 2 WINNING IS EVERYTHING As long as there are teachers An interview with Anne Sheehan, Director of Corporate Governance at the California State Teachers’ Retirement System (CalSTRS). oes this year mark a watershed has not changed but in our updated Where does CalSTRS stand on for proxy access? How quickly guidelines, we have provided more implementing a universal ballot for Ddo you expect change from specific detail on the types of access proxy voting in the US? In your opinion companies on this topic? proposals we prefer. We have put the would it lead to increased shareholder three-and-three construct into our activism, and if so, is that good or bad? Yes, we at CalSTRS do believe that proxy voting guidelines and have said this marks a watershed. We have been we will back shareholder proposals We are supportive of the SEC taking long-term supporters of proxy access; based on specific criteria. I think that’s up the issue of the universal ballot. we supported the SEC rule and were more effective, because companies It wouldn’t necessarily lead to more disappointed when the rule was will no longer be left wondering what activism, as most activists already vacated. We are expecting over 100 thresholds we prefer. wage proxy fights from time to time proposals this year, so we think we are under the current regime. However, the at a tipping point. universal ballot would be efficient, and There’s some could be used to both companies’ and And it’s not just the shareholder reluctance to shareholders’ advantage. That would proposals. With the SEC suspending adopt proxy come with the evolution of the use of a no-action letters after the Whole Foods access, but universal ballot. We’re not talking about situation, there is a greater opportunity often times on these wholesale change every year. to push for change. Sentiment is issues, companies beginning to coalesce on this issue. “have to digest what CalSTRS has a number of governance Although there are some outliers, shareholders want” managers and we do partner with our the “three-and-three” formulation* managers on some of their proposals. structured on the original SEC proposal In past years, we’ve voted against The message to companies is that appears to be widely accepted among lower thresholds, such as a “one- they have to be on their toes. We’re institutional investors. and-one” or three-and-three without not worried about the level of activism; any protections. They didn’t quite fit activists play a beneficial role in the I’ve heard from some corporate issuers the model, and in those situations capital markets. that the shareholders have “won”. It’s we explained to the proponents why fair to say there’s some reluctance we voted the way we did. CalSTRS Did the Shareholder Director Exchange on the part of issuers to adopt proxy believes that this is a fundamental make a difference over the last year? access, but often times on these right that should be available to all Will Jim Woolery’s new fund provide an issues, companies have to take some shareholders but should have enough important example for newer activists? time to digest what shareholders want. structural protections to make sure this right is not abused. For instance, The Shareholder Director Exchange How has CalSTRS’ policy on proxy we don’t believe that hedge funds will and similar initiatives have been very access changed and how is it expected be prepared to wait three years for a positive from our perspective. These to be more effective? proxy fight, in order to avail themselves types of initiatives have resulted in of access. more discussion with issuers, on Our policy toward supporting access issues such as compensation with the 4 “THE MESSAGE TO COMPANIES IS THAT THEY HAVE TO BE ON THEIR TOES. WE’RE NOT WORRED ABOUT THE LEVEL OF ACTIVISM; ACTIVISTS PLAY A BENEFICIAL ROLE IN THE CAPITAL MARKETS” advent of say on pay. There are certain Is there any sign that the tech industry’s out that you see these firms lack the issues where we need to escalate famously high barriers (e.g. different mechanisms for shareholders to exert things to the level of the board, or where share classes, staggered boards) are influence. management are not in a position spreading beyond Silicon Valley, or to discuss a board matter, such as is the general trend positive for US What three things would you seek to executive compensation. It is awkward corporate governance? change, either about the proxy voting to hold a conversation about a CEO’s or engagement process? remuneration with the HR team, who We have some concerns, as evidenced work for that very CEO. I wish Woolery by some of the practises Silicon Valley I think our three things would be the the best. He’s clearly learned a lot from technology firms. While they are not universal ballot, a universal proxy his time as a lawyer and has partnered completely isolated their governance access rule – companies are starting with an experienced professional from practises don’t seem to have gone to adopt bylaws governing this but we JP Morgan. I think that doing activism mainstream either. There is a certain think it would be useful if the SEC could and having the corporate perspective is culture among these firms and our standardise this, although they are still an innovative approach. view is that at some point they need very busy with Dodd Frank – and a to “grow up” and mature by adopting majority voting standard. You’re supportive of Trian’s campaigns best governance practises expected in at PepsiCo and DuPont. Both stocks the wider market. If they are good, well- We’ve been sending 100 letters a year are doing well. Why is an activist run firms, they don’t need to defend to companies in the Russell 2000 needed? themselves. Actually, one of the best calling for majority voting, starting with performers in recent years, Apple, has the largest and working our way down The issue for larger firms is not the a very good governance profile.