Launched publicly in November 2014 by New York City Comptroller Scott Stringer and the New York City pension funds, the Boardroom Accountability Project is a groundbreaking campaign to give shareowners the right to nominate directors at U.S. companies using the corporate ballot, known as “proxy access.” To ensure that companies are truly managed for the long-term, boards must be composed of diverse, independent and accountable directors. The ability to nominate directors is a fundamental shareowner right and the starting point for this transformation.
By submitting proxy access shareowner proposals to 75 companies at once in fall 2014 and working in close collaboration with other major institutional investors, Comptroller Stringer and the City’s pension funds sought to invigorate institutional investors’ efforts to enact proxy access across the U.S. market.
The proposals requested a proxy access bylaw permitting shareowners that have collectively held 3% of the company for at least three years to nominate up to 25 percent of the board using the company’s ballot. The terms are identical to those included in a rule enacted by the Securities and Exchange Commission (SEC) in 2010 that provided proxy access at all U.S. public companies, but that was vacated by a federal court on procedural grounds shortly thereafter.
The 75 companies included companies that failed to align executive compensation with business performance, companies with little or no apparent gender or racial diversity on their board, and carbon-intensive energy companies that are among the most vulnerable to long-term business risks related to climate change.
The 75 shareowner proposals produced very strong results. Two-thirds of the proposals that went to a vote received majority support. And the vast majority of engaged companies had enacted proxy access bylaws within the following year, including Chevron, Hasbro, Occidental Petroleum, Staples and Priceline.
Since the launch of the Boardroom Accountability Project, the Comptroller’s Office and the New York City Pension Funds have continued to advocate adoption of meaningful proxy access provisions across the market, by filing shareowner resolutions, engaging in dialogue with portfolio companies thatare proactively moving to enact what has become recognized as “best practice,” and publicly promoting the benefits of greater director accountability in our financial markets.
In response to continuous engagements, as well as broad and diverse investor support, 270 U.S. companies had enacted proxy access bylaws, including an estimated 40% of the S&P 500 Large-Cap Index, by September 2016, with many more anticipated in the near future.
The Current System
At most corporations, CEOs and/or directors handpick nominees for election to the board. Usually, they pick themselves and their allies, and the shareowners’ right to nominate directors to run against these individuals is largely illusory. Because corporate directors typically are elected by a plurality of votes in uncontested elections, a director who owns one share of a company can re-elect him- or herself, even if every other shareowner votes against that person. Of 51 directors who failed to receive majority votes in 2016, 44 remain on the board as “zombie directors,” unelected but still serving.
About Proxy Access
Proxy access is the ability for shareowners to nominate directors to run against a company’s chosen slate of board of directors and have those directors listed on the company ballot that is mailed to all shareowners.
The shareowner proposals submitted by Comptroller Stringer and the New York City pension funds request a bylaw to give shareowners who meet a threshold of owning three percent of a company for three or more years the right to list their director candidates, representing up to 25 percent of the board, on a given company’s ballot. The proposals will be subject to shareowner votes at those companies that do not agree to the request.
Such a high bar of long-term ownership– 3% for three years– ensures that short-term investors will not be able to manipulate corporate governance at the expense of those seeking long-term value.
Selection of Companies
Since 2014, Comptroller Stringer and the New York City Pension Funds have primarily focused on climate risk, board diversity and excessive CEO pay to select target companies, in addition to filing at some of our largest holdings.
History of Proxy Access
Investors have long called for the ability to nominate directors to the corporate proxy through “proxy access,” but have historically faced significant opposition. Originally proposed 60 years ago, the most recent effort to implement meaningful access to the proxy was reinvigorated by the SEC in 2003 as a way to end the “Imperial CEO” in response to board failures at Enron and WorldCom. The SEC finally approved a universal proxy access rule in 2010 in response to the financial crisis, but that rule was vacated shortly thereafter by the D.C. Court of Appeals on procedural grounds. However, the Court of Appeals did not vacate a newly-established provision within the Dodd-Frank Financial Reform Act that enabled shareowners, such as the New York City Pension Funds and others, to start requesting proxy access mechanisms at portfolio companies through shareowner resolutions. After initial success by institutional investors in prompting numerous companies to enact proxy access, the Boardroom Accountability Project was launched in 2014 to rapidly expand proxy access rights across the U.S.