This proxy season in the US is likely to be highly politicised, with the public sector’s pension funds playing a big role. In fact, it will be a test for several rules introduced by the Dodd-Frank Wall Street Reform and Consumer Protection Act. In addition, the 2012 presidential campaign is getting hotter, with the Republican candidates promising to repeal the Act, if elected. The Republicans already control the House of Representatives and might conquer the Senate, too. Moreover, if Barack Obama loses, the new Republican president will be able to nominate a new Securities and Exchange Commission chairman and the SEC will change from a Democratic majority to a 3-2 Republican majority.
The stakes are high and the largest US public pension funds are getting more and more active in the political fray. The $235bn (€178bn) California Public Employees’ Retirement System (CalPERS) has formed an international coalition of 14 retirement systems defending the US financial reform and supporting the SEC’s job of implementing the new law. The 14 funds manage more than $1.6trn in retirement savings and include five UK institutions, two Dutch funds, an AustralianSuper and five US funds.
The coalition wrote a letter to Mary Shapiro, SEC chairman, saying it stands “ready to assist the commission to combat efforts to weaken or roll back the important investor protection provisions of Dodd-Frank”. It also urges her to adopt six new initiatives: an investor advisory committee to report to the SEC; universal proxy access for investors equal to a company’s board of directors; executive compensation reform; advancing international financial reporting standards; reforming the transparency of securities ratings; and clarifying the guidance on climate-risk disclosures as they integrate into financial reporting.
Proxy access, executive compensation and the independence of the chairman are central issues in the current annual meeting cycle.
Proxy filings are the statements required to be sent to shareholders before they vote by proxy on company matters. ‘Proxy access’ is the mechanism through which they can nominate directors and list their candidates’ names on their corporate proxy ballots. In July 2011, the US Court of Appeals for the DC Circuit threw out a proposed SEC rule that under certain conditions would have forced public companies to give shareholders proxy access. The SEC responded by amending Rule 14a-8 to permit shareholder proposals seeking proxy access, and now there are already several such proposals submitted to annual meetings.
Regarding director selection, CalPERS scored a victory at the last Apple annual meeting on 23 February. The Californian company approved the pension fund’s non-binding proposal to implement a majority vote standard for its board of directors. Over the past two years CalPERS has got 77 major American companies on board with the idea of majority voting.
The Dodd-Frank Act introduced the ‘say on pay’ provision - the shareholders’ right to vote on remuneration plans in 2011 and the effects are starting to show. On its new proxy filing the Denver asset manager Janus Capital Group took into account the shareholders’ vote against management at its 2011 annual meeting. It cut 40% of the 2011 pay of CEO Richard Weil and linked part of his 2012 pay to Janus’s operating income, capping his future possible annual pay at $10m. Janus’s proxy included a shareholder proposal from the pension plan of the American Federation of State, County and Municipal Employees, urging it to adopt a policy that its chairman be an independent director.
Large pension funds will strongly push the issue of separating the role of CEO and chairman. CalSTRS sent a letter to Mark Zuckerberg even before Facebook went public, urging him to split the role of chairman and CEO, and to increase boardroom diversity by adding a woman director.