PROXY ACCESS IS IT WHEN, NOT IF?

Transcription

1 1 PROXY ACCESS IS IT WHEN, NOT IF? Recent Developments in the Battle for Boardroom Access

2 2 Panelists Eric S. Siegel Partner, Dechert LLP Allie M. Stouffer Associate, Dechert LLP Bruce H. Goldfarb President and Chief Executive Officer, Okapi Partners Margaret M. Foran Chief Governance Officer, Vice President and Corporate Secretary, Prudential Financial, Inc. See Appendix II for complete biographies

3 3 Overview History of proxy access Recent developments Shareholder proposals Role of proxy solicitation firm Recent shareholder proposals Panel discussion 2015 and beyond

4 4 What is proxy access? History of Proxy Access What is the rationale for proxy access? What prompted the modern push for proxy access?

5 5 History of Proxy Access Mandatory proxy access rule adopted under Dodd Frank (Exchange Act Rule 14a-11 3% of shares/held for 3 years/25% of board) Companion amendments to Exchange Act Rule 14a-8 ( private ordering ) Mandatory proxy access rule vacated in 2011 Shareholders left with private ordering under Rule 14a-8

6 6 Recent Developments NYC Boardroom Accountability Project attempting to roll out proxy access across the market Exclusion of shareholder proposals under Rule 14a-8(i)(9) Whole Foods no action letter

7 7 Recent Developments SEC changes position for 2015 will not issue no action letters supporting exclusion of shareholder proposals New ISS position for 2015 supports proposals similar to vacated Rule 14a-11 (3% of shares/3 years/25% of board) Glass Lewis will continue reviewing proposals case by case Public support from some large institutions

8 8 Anatomy of a Shareholder Proposal The Issuer s Perspective Pre-proposal engagement Attempts to exclude Preemptive implementation Statement in opposition Investor Perspective Process for analysis and intake Use of ISS and other proxy advisors

9 9 Role Of A Proxy Solicitation Firm

10 Leading Shareholder Proposals Proposal Total Count of Proposal Submitted to Vote* Average Support** Political Issues % Elect Dissident's Director Nominee % Environmental Issues % Separate Chairman and CEO Positions/Independent Chairman % Human Rights % Change Vote Requirement to Elect Directors to Majority from Plurality % Vote on/limit Severance Agreements ("golden parachutes") % Other Corporate Governance Issues % Allow for or Decrease Requirement to Act by Written Consent % Allow for or Decrease Requirement to Call Special Meetings % Require Equity be Retained by Executives/Directors for Specified Period % Shareholder Nominee in Company Proxy (Proxy Access) % Sustainability Report % Eliminate Supermajority Requirements % Declassify Board % *Includes proposals that were voted on but where results were either pending or not disclosed **As a percentage of votes cast where results are publicly reported Source: FactSet SharkRepellent and Okapi Partners LLC

11 Corporate Governance Shareholder Proposals Proposal Type Total Count of Proposals Submitted Withdrawn/Omitted Pass Fail Separate Chairman and CEO Positions/Independent Chairman Change Vote Requirement to Elect Directors to Majority from Plurality Other Corporate Governance Issues Vote on/limit Severance Agreements ("golden parachutes") Allow for or Decrease Requirement to Act by Written Consent Require Equity be Retained by Executives/Directors for Specified Period Allow for or Decrease Requirement to Call Special Meetings Shareholder Nominee in Company Proxy (Proxy Access) Eliminate Supermajority Requirements Declassify Board Cap/Restrict Executive Compensation Eliminate Dual Class Structure (Unequal Voting) Other Executive Compensation Issues Link Pay/Equity Grants and Vesting to Performance ("pay-for-performance") Recoup Bonuses/Incentive Pay if Restatement/Discredited ("claw-back") Source: FactSet SharkRepellent and Okapi Partners LLC

12 Corporate Governance Proposals (Voted on) All Other Corporate Governance Issues % Separate Chairman and CEO Positions/Independent Chairman % Eliminate Dual Class Structure (Unequal Voting) % Eliminate Supermajority Requirements % Allow for or Decrease Requirement to Call Special Meetings % Declassify Board % Shareholder Nominee in Company Proxy (Proxy Access) % Vote on/limit Severance Agreements ("golden parachutes") % Change Vote Requirement to Elect Directors to Majority from Plurality % Allow for or Decrease Requirement to Act by Written Consent % Require Equity be Retained by Executives/Directors for Specified Period % Source: FactSet SharkRepellent and Okapi Partners LLC

13 13 Proponents of 2014 Corporate Governance Proposals (Voted on) Source: FactSet SharkRepellent and Okapi Partners LLC

14 14 Panel Discussion Proxy Season and Beyond Approaches to proxy access Other shareholder proposals Utility of proxy access The future of proxy access

15 15 A Typical Stockholder Family Tree Shares Outstanding Appendix I Registered Holders Beneficial Holders - "DTC" Company Plans Officers & Directors Employees/Retirees Unaffiliated Individuals Banks Institutions Respondent Banks Unaffiliated Individuals Foreign Brokers Unaffiliated Individuals Company Plans Hedge & Arbitrage Foreign

16 16 Evaluation of Solicitation Process and Alternatives The Key To A Successful Solicitation is Planning Ahead New Solicitation Strategies Where to Begin Analyze stockholder base and evaluate client interaction with investors Setting meeting date and record date these dates can have an impact Create vote projection(s) for respective proposals and campaign scenarios Develop appropriate response scenarios o Segment solicitation and communication strategies for different stockholders (retail, institutional, proxy advisory, etc.) o Plan strategy for communication with Institutional Shareholder Services (ISS) and Glass Lewis o Use appropriate solicitation communication technologies Internet and Social Media Mail Vote by Phone (OnPhone Voting ) Traditional Media

17 17 Stockholder ID The Stockholder Identification process at Okapi Partners combines art, science, and elbowgrease to help clients go beyond 13F filings to understand who the investors are now. Short Interest Options Monitoring Phone Calls & Hedge Fund Scouring DTC LIST 13F Filings Record Date Stockholders

18 18 Piecing The Puzzle Together Who owns my shares today? Who is buying/selling? Where are the trades settling? Are there shares on loan? What is our real short interest? Is my stock expensive to borrow? What is happening with our options? Which brokers are trading my stock? What does the street think about my stock? Stockholder ID is the foundation to successful client campaigns. It is crucial to identify current investors to effectively craft the solicitation campaign.

19 19 Analyzing Stockholder Base Highlights Differences of Approach Among Investors Active Managers Index Funds Quant Funds Public Pension Funds Hedge Funds Activists Retail Portfolio manager influence can be significant Hold at Custodial Banks Typically receive research from ISS/GL May vote case-by-case Hold at Custodial Banks Heavily influenced by ISS/GL Frequently automatic ISS/GL Generally do not interact with companies Hold at Custodial Banks Usually automatic ISS/GL May pursue governance activism Hold at Custodial Banks Heavily influenced by ISS/GL May have custom voting policy Often support activist agenda Hold at Prime Brokers and Custodial Banks May subscribe to ISS/GL Typically vote case-by-case on activist matters Hold directly and through derivatives Transaction focused Hold at Prime Brokers and Custodial Banks May subscribe to ISS/GL Vote case-by-case on activist matters May be difficult to reach in activist situations or proxy fights Hold on Registered List and at Retail/Discount Brokers Tend to support management Hearts and minds can be won through outreach

20 20 Why The DTC List Is Important Morgan Stanley #50 - Prime Broker Morgan Stanley #15 - Retail custody accounts comprised of former Dean Witter and Smith Barney accounts The Depository Trust Company Participant Participant Number Name Quantity 2116 FIFTH THIRD BK 489, FTB/TEACH 49,475 5 GOLDMAN 45, GOLDMAN LP 11, JPM BK/IA 1,744, JPMC CLEAR 62, JPMCBNA 2,310, MESIROW 1, MORGAN LLC 5,500, MSSB 512, NRTHRN TR 1,828, SSB&T CO 7,091, SSB 2,380, UBS FINAN 330,706 JP Morgan # Commonly custodies Index Funds JP Morgan #352 (F/K/A Bear Stearns) either Prime Broker or retail clients JP Morgan #902 - Traditional JPMorgan Institutional custody account State Street #997 Traditional Institutional Custodian State Street # 2767 Segregated account for Blackrock s securities Understanding the profile of a specific custodian and the various accounts within its custody provides important information about buyers and sellers.

21 21 Perception vs. Reality: The Dangers of Relying on Publicly Available Filings Shareholder Composition Based on Publicly Available Filings* Shareholder Composition Based on Active Surveillance Program Insiders 11.39% Retail 9.57% Insiders 11.38% Retail 9.60% Hedge Funds 18.72% Institutions 60.32% Hedge Funds 28.60% Institutions 50.42% *Most Public Filings are only made available once a quarter and typically have a 45-day lag before they are published

22 22 Appendix II Eric S. Siegel Mr. Siegel is a Partner with Dechert LLP. He advises corporate clients and financial sponsors in mergers and acquisitions, joint ventures, corporate governance, capital markets, securities law compliance and general corporate matters. In addition, he advises boards of directors and special committees of public and private companies in connection with a range of issues, including fiduciary duties, board oversight, interested party transactions, risk management, and special investigations and disclosures. Mr. Siegel is Co-Chair of the Venture Capital and Private Equity Law Committee of the Philadelphia Bar Association and is admitted to practice in Pennsylvania and New Jersey. He is listed as a leading lawyer in legal directory The Legal 500 (U.S.), where he has been cited as a rising star who is razor sharp, a keen negotiator and a true business partner. Mr. Siegel received his B.A., summa cum laude, from the University of Pennsylvania and his J. D. degree from Harvard Law School.

23 23 Allie M. Stouffer Ms. Stouffer is an Associate with Dechert LLP. She focuses her practice on corporate finance and capital markets transactions, mergers and acquisitions, and public company reporting and governance issues. Ms. Stouffer advises issuers and investment banks, private equity sponsors and their portfolio companies, and public and privately-held corporations across a wide range of industry sectors. She is admitted to practice in Pennsylvania and New Jersey. Ms. Stouffer received her B.A., cum laude, from the University of Pennsylvania and her J.D., summa cum laude, from Temple University Beasley School of Law.

24 24 Bruce H. Goldfarb Mr. Goldfarb is a founder of proxy solicitation firm Okapi Partners and serves as its President and Chief Executive Officer. Bruce works extensively with corporate and mutual fund clients, as well as third party investor and shareholder groups, including private equity sponsors, hedge funds and arbitrage firms, in solicitation and information agent campaigns. He focuses on proxy solicitation strategy and execution for mergers and acquisitions, proxy fights and other extraordinary transactions. Before entering the proxy solicitation business, Bruce was a Senior Vice President of the investment management firm, Scudder, Stevens & Clark, which is now a part of Deutsche Asset Management. At Scudder, he was a member of the legal department and served as Chairman of the Firm s Proxy Review Committee. Bruce practiced corporate law at Cravath, Swaine & Moore for more than six years, where he specialized in mergers and acquisitions, securities transactions and international matters. Bruce earned a J.D. from the Columbia University School of Law. He also received a B.A. in the History of Art from the University of Pennsylvania concurrently with a B.S. Econ., concentration in Finance, from its Wharton School.

25 25 Margaret M. Foran Ms. Foran is Chief Governance Officer, Vice President and Corporate Secretary of Prudential Financial, Inc. She has been a corporate governance leader throughout her career at Sara Lee Corporation, Pfizer, Inc. and J.P. Morgan & Co., Inc. She is admitted to the New York, Illinois, Pennsylvania, and New Jersey (In-house) Bars. Ms. Foran is a Director on the Board of Occidental Petroleum Corporation and Chairperson of its Corporate Governance, Nominating and Social Responsibility Committee. She previously served on the Board of Directors of The MONY Group Inc. and MONY Life Insurance Company. Her many contributions to the Society of Corporate Secretaries and Governance Professionals is evidenced by her leadership roles as former Chairman, former director, former Chair of the Securities Law Committee, and former Treasurer. Her proactive shareholder outreach and thought leadership on key governance issues has earned her global recognition as a leader in corporate governance. She has been recognized as one of the Most Influential People in Corporate Governance by Directorship Magazine for five consecutive years. In 2011, she was identified by Treasury and Risk Magazine as one of the Most Influential People in Finance. In 2013, Corporate Secretary Magazine named Ms. Foran Governance Professional of the Year. Ms. Foran received her B.A., magna cum laude, and J. D. degrees from the University of Notre Dame.

26 26 Contact Eric S. Siegel Partner, Dechert LLP eric.siegel@dechert.com Allie M. Stouffer Associate, Dechert LLP allie.stouffer@dechert.com Bruce H. Goldfarb President and Chief Executive Officer, Okapi Partners bhgoldfarb@okapipartners.com Margaret M. Foran Chief Governance Officer, Vice President and Corporate Secretary, Prudential Financial, Inc margaret.foran@prudential.com