Shareholder proposals are a staple of annual shareholders
meetings. In the U.S. and Canada, proposals are mainly made by
labour-affiliated investors, individual activists, and social-,
policy- or religious- oriented investors. They cover a wide range
of topics from corporate governance to corporate social
In 2013, in the U.S., the most common topics dealt with
political contributions and lobbying, board declassification and
independent chairs. In Canada, compensation issues, such as
say-on-pay or limiting CEO compensation, consisted of more than
half the proposals in 2013.
According to U.S. and Canadian corporate law, the board of
directors manages the business and affairs of a corporation.
Shareholder proposals can only be presented as recommendations.
Thus, a board of directors is not legally compelled to implement a
proposal that is approved by a majority of shareholders.
For the 2014 U.S. proxy season, however, ISS will
apply a policy of potentially recommending that shareholders vote
against directors where the board failed to act on a shareholder
proposal that received the support of a majority of the shares cast
in the previous year. The recommendations will be made on "a
fact-specific case-by-case basis" and consider the following
disclosed outreach efforts by the board to shareholders in the
wake of the vote;
rationale provided in the proxy statement for the level of
the subject matter of the proposal;
the level of support for and opposition to the resolution in
actions taken by the board in response to the majority vote and
its engagement with shareholders; and
the continuation of the underlying issue as a voting item on
Similarly, in Canada, the 2014 proxy season will be the first
where ISS applies its policy of recommending that shareholders
withhold from continuing individual directors, committee members,
or the continuing members of the entire board of directors if the
board failed to act on a shareholder proposal that received
majority support from shareholders. While the Canadian policy is
not as detailed as in the U.S., ISS will apply it on a case-by-case
basis. In doing so, it will give consideration to the board
response and rationale.
With its updated policies on the subject, ISS seeks to strike a
balance between the directors' duties to act in the best
interest of the company and their responsiveness to shareholders.
It will be interesting to watch the influence of this new policy on
director elections, if any, over the course of the coming proxy
This is the last in a series of five posts intended to
consider securities regulatory developments to watch in
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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