Summaries by Issue Category Management Proposals

Transcription

1 TO: State Universities Retirement System ( SURS ) FROM: Greg A. Kinczewski, Vice President/ General Counsel DATE: May 16, 2013 RE: Review of Vote Summary Report for First Quarter 2013 The Vote Summary Report for the First Quarter, 2013, summarizes Marco Consulting Group s ( MCG ) votes for the State Universities Retirement System of Illinois (SURS), which are organized in the 13 major categories listed below. The report provides summaries for each major category of management and shareholder-sponsored proposals. The shareholder proposals are identified as such in the title; all other categories are management proposals. The report covers votes at US and Canadian firms as well as global companies where SURS investment was pursuant to American Depository Receipts. 1. Anti-Takeover Related 2. Capitalization 3. Directors Related 4. Non-Salary Compensation 5. Reorganization and Mergers 6. Routine/Business 7. Shareholder Proposals: Compensation 8. Shareholder Proposals: Corporate Governance 9. Shareholder Proposals: Directors Related 10. Shareholder Proposals: Health/Environment 11. Shareholder Proposals: Other/ Miscellaneous 12. Shareholder Proposals: Routine/Business 13. Shareholder Proposals: Social/ Human Rights Overview MCG voted 1,985 proposals on behalf of SURS for the First Quarter of Overall, the votes followed management s recommendations on 1,389 proposals (70%). We supported a majority of management-sponsored proposals in all categories except Non-Salary Compensation. The proposals in this category largely seek shareholder approval for individual compensation plans or are advisory votes on overall compensation policies and procedures. MCG supports plans where pay is aligned with performance, is not excessive and follows best practice in corporate governance. MCG voted with management on 40% of Non-Salary Compensation proposals, up from 35% last quarter. Headquarters Office 550 West Washington Blvd., Suite 900, Chicago, IL P: F: East Coast Office 25 Braintree Hill Office Park, Suite 103, Braintree, MA P: F: Western Office 1746 Cole Blvd. Suite 225, Golden, CO P: F:

2 Summaries by Issue Category Management Proposals 1. Anti-Takeover Related MCG voted with management on 39 out of 44 proposals (89%) in this category. Most proposals in this category (40) request approval to adjourn a meeting. Companies trying to assure passage of important votes sometimes seek approval to adjourn the meeting to solicit more votes if needed. MCG votes in favor of these proposals when the connected proposal is supported and likewise votes against when the associated proposal is not supported. This quarter, MCG voted in favor of adjourning on 36 of 40 (90%) proposals. Four additional issues saw one proposal apiece this quarter. We voted in favor a proposal to adopt a poison pill at Beazer Homes USA, Inc. Poison pills allow shareholders to buy shares at a steep discount and thereby dilute the value of the stock and discourage takeovers that may be in shareholders best interest. However, in this case the poison pill was designed to protect a tax benefit. The net operating loss poison pill ("NOL pill") preserves the Company's ability to use certain tax assets, such as NOLs, to offset future income and thereby reduce potential future federal income tax obligations. We also supported another proposal at Beazer Homes USA to amend the charter to enable the execution of the NOL pill. At Urstadt Biddle Properties Inc. we voted against a proposal to reduce a supermajority vote requirement necessary to amend the company's governing documents or approve extraordinary transactions to the affirmative vote of a majority of shares. Normally this proposal would be supported but the circumstances at this Company are unusual--two insiders on the board together hold close to two-thirds of the Company's voting power. Therefore, the current supermajority vote requirement is necessary to protect the interests of minority shareholders. The final vote cast in this category was in favor of eliminating a fair price provision at Becton, Dickinson and Company. Such provisions set minimum requirements for takeover bid which may discourage offers that are in shareholders interest. 2. Capitalization MCG voted with management on 24 of 42 proposals (57%) related to companies market capitalization. These proposals seek to increase or decrease authorized common stock, issue warrants, preferred or common shares and consider stock splits. MCG supported three of 16 proposals (19%) to increase authorized common or preferred stock where the amount sought was not excessive (i.e., not more than 50% of the current authorizations) or was necessary for a specific purpose. One of these proposals is included in the Company-Specific Equity Related sub-category because the request at Tyco International Ltd also included the right to waive shareholders preemptive rights under certain conditions. Also in this sub-category was a proposal we supported at First Bancorp to permit the board to convert preferred stock into common stock and to strike a provision that would allow preferred stockholders to appoint two 2

3 members to the board when the Company did not pay dividends for 18 monthly dividend periods. We also voted for three proposals to reduce share capital, one to reduce authorized stock and another to reduce the share premium account. MCG supported six proposals to reverse stock splits, which adjusts the quantity of company shares to encourage larger purchases of stock. MCG supported one proposal to issue shares for a private placement. In all cases, the amounts sought were not excessive. We cast a vote to abstain on two of three proposals that sought to repurchase stock because the companies failed to provide explanations for the transaction and supported the remaining proposal. MCG supported several routine proposals related to the allocation of equity (some of which appear in the Company-Specific Equity Related sub-category): three on converting preferred stock and warrants into common stock; one to approve a sale of patents; one to extend the timeline to use authorized capital; one to amend transfer restrictions; and another to authorize a new class of common stock. We voted against two proposals to reissue repurchased shares because combined with additional share issue requests at those companies the amounts became excessive. We also voted against a proposal to amend the bylaws to allow the board to increase or decrease shares without shareholder approval. 3. Directors Related MCG voted with management on 988 of the 1,241 proposals (80%) in this category. The vast majority of proposals in this category and of all votes cast this quarter are to elect directors. MCG voted on 1,225 proposals to elect individual directors and voted with management 976 times (80%). Nominees are opposed if a company significantly underperformed its peers for five years or directors had poor attendance records, served as insider nominees on boards that lacked independence, or sat on too many other boards, which threatens effectiveness. We voted in favor of one proposal that combined the director election with the director s remuneration and abstained from a similar proposal where the Company did not disclose the amount of remuneration. Dissidents waged two proxy contests this quarter at International Game Technology and at CSP Inc. At CSP Inc., the dissident shareholder, North & Webster Opportunities Fund LP (N&W) with a 4% stake, failed to make a compelling case for its nominees and therefore we voted in favor of all nominees on the management ballot. At International Game Technology, 3% shareholder Ader Investment Management LP ( AIM ) presented three of its nominees on a dissident ballot. According to AIM, the Company s poor performance was a result of a shift away from its core business (slot machines) into noncore area (social on-line gaming), which has in turn lead to eroding market share and missed opportunities in growth markets (Asia and Latin America). AIM stated that none of the Company s top five executives and only two directors had any prior casino gaming experience. One equity analyst made the following observations on the Company s situation: 1) the Company has lagged many of its competitors over the past 1, 3, and 5 years but there has been stark underperformance of the casino equipment industry generally: 2) the years of company market share decline appear to have stopped and perhaps even reversed under management s new strategic initiative; and 3) the Company is not in need of radical restructuring (its challenges are not those commonly found at firms with distressed capital structures) but the injection of a shareholder perspective on accountability for results would be desirable. Therefore, MCG supported 3

4 one dissident nominee with significant experience in the gaming industry and five of the management nominees on the dissident ballot. MCG supported six proposals to declassify the board, which means each director must stand for election on an annual basis rather than every few years as part of an election for a particular class of directors. This quarter we supported one proposal at Joy Global Inc. to require a majority voting standard for director elections, which requires that nominees receive at least a majority of votes cast to assume a seat on the board. MCG voted on one proposal at SurModics to fix the number of directors at its current size, which we supported because the board is two-thirds independent, and against a proposal at Atwood Oceanics, Inc. to allow the board to set its own size without shareholder approval. We voted against two proposals seeking to discharge the management board of Tyco International Ltd. and TE Connectivity Ltd. because in these cases the discharge of liabilities could hinder claims for damages that are in the best interests of shareholders. We supported a proposal at Stratasys Ltd. to appoint the board chairman as chief innovation officer in line with the terms of a merger agreement with Object Ltd. We supported the removal of a director at Wynn Resorts, Limited following allegations of violations of the Foreign Corrupt Practices Act. The final item in this category is a proposal seeking shareholder approval for proxy access at Hewlett-Packard Company. The provision enables an investor or a group of investors who own three percent or more of the company's shares for at least the previous three years to nominate candidates using the Company's own proxy materials for up to twenty percent of the board. The management proposal, which we supported, came on the heels of a shareholder proposal the previous year on the same issue that received a majority vote. 4. Non-Salary Compensation MCG voted with management on 127 of the 321 proposals (40%) in this category. This quarter, MCG voted in favor of 91 of 175 (52%) advisory proposals on executive compensation, popularly known as say-on-pay. We evaluate compensation by assessing whether pay aligns with performance and examining other practices to identify red flags for potential misuses of shareholders funds. The future timing of say-on-pay proposals accounted for another 14 resolutions and MCG elected for an annual vote in all cases, as opposed to voting on the issue every two or three years. One of these proposals was not voted because it appeared on the unsupported ballot in a proxy contest. Another 29 proposals this quarter sought shareholders advisory vote on severance agreements when a change in control took place. MCG voted in favor of 19 proposals (66%) of the total. We oppose severance arrangements where the recipients receive payments even if they do not lose their job or the deal falls through. We also oppose in cases where the severance pay-out exceeds 2.99 times salary and bonus or provides for the gross-ups on excise taxes. The other major items in this category seek approval to create or amend individual compensation plans for employees, executives and directors. MCG voted in favor of 4

5 eight of 103 proposals (8%). MCG generally opposes equity or cash compensation plans that are exclusive to top-tier management and lack rigorous performance standards. We also oppose stock plans that cause excessive dilution to current shareholder equity. 5. Reorganizations and Mergers MCG voted with management on 42 of 43 proposals in this category. MCG supported 28 of 29 merger proposals as well as all seven proposals seeking approval to issue shares in connection with an acquisition. We opposed the purchase of American Realty Capital Trust, Inc. by the Realty Income Corporation. The deal did not appear compelling to American Realty Capital Trust shareholders based on where both its closest peers and larger peer group trade, especially given the Company's very favorable performance since going public. Given management's prospective financial results released a month ahead of the merger announcement that anticipated further external growth as a stand-alone company, the acquisition provided little or no control premium relative to the status quo. There was little material downside risk of not approving the transaction. On balance, the lack of a compelling valuation, meaningful premium, or downside risk if the deal breaks, prompted us to vote against the merger. Several other items in this category address other changes to company assets. We supported two proposals for liquidation, one on the sale of company assets, two on reorganization plans and one to recapitalize. We supported a proposal at Alterra Captial Holdings Limited to reduce the approval threshold for mergers from 75% to 50%. A simple majority is a sufficient threshold for shareholder approvals. 6. Routine/Business MCG voted with management on 159 of the 248 proposals (64%) in this category. The ratification of auditors accounts for nearly 83% of the routine matters voted on at companies this quarter. MCG supported 129 of 205 (63%) of these proposals. Votes are cast in favor unless auditors receive excessive amounts for non-audit services because auditors that receive hefty fees for non-audit work may be conflicted when conducting audit work. We abstained in cases where the company did not disclose the fees. We also supported two of three bundled proposals to approve auditors and their remuneration where the pay was not excessive. MCG voted for six of nine proposals to elect members of the audit committee and another proposal to appoint a special auditor. MCG generally supports routine matters that do not impinge on shareholder interests. We voted in favor of six proposals to accept financial statements and statutory reports, four proposals on distributing dividends and other income and three bundled proposals on approving financial statements and allocating income. Three additional proposals that saw support are: approve minutes of a meeting; execute approved resolutions; and change the date and location of the annual shareholder meeting. MCG did not support any of the nine proposals seeking blank check approval for conducting other business that may come before the meeting because companies should provide shareholders with the opportunity to assess all proposals that require their approval. We voted in favor of a bundled proposal at Apple Inc. that strengthened shareholder rights by implementing majority voting and requiring shareholder approval. 5

6 We supported two of three proposals to make good housekeeping or non-controversial amendments to company bylaws. We opposed a proposal to dissolve the Special Nominating Committee of the board at Spectrum Brands Holdings, Inc. The Special Nominating Committee was established in 2010, shortly after the firm emerged from Chapter 11 bankruptcy. It was formed for the purpose of providing protective provisions for two large minority shareholders who had raised concerns over Harbinger Capital's majority stake in the Company. The board argued that due to the improved financial and operational strength of the Company and the exit of one of the two initial large minority shareholders the Special Nominating Committee was no longer necessary. We voted against the elimination in light of the Company's very weak governance structure (the board does not have even a majority of independent outsiders on it, its members are elected to staggered terms on a plurality standard, there is no lead director and its standard Nominating and Governance Committee is not fully independent). Finally, we voted in favor of a proposal at Fomento Economico Mexicano SAB de CV (FEMSA) that is classified as miscellaneous on the report. This is a routine item seeking acceptance of a report on the Company s adherence to fiscal obligations. Shareholder Proposals 7. Shareholder Proposals: Compensation MCG voted for all four shareholder proposals on compensation issues this quarter. Three items suggested companies implement a policy that executives should retain 75% of their equity until they retire or leave the company. Executives that must delay cashing in equity awards until they retire have increased motivation to protect the long-term, sustainable growth of the company. We also supported a proposal at Walgreen Co. that requested the Company require that its executives become eligible for equity awards in connection with a change in control only if their employment is terminated. 8. Shareholder Proposals: Corporate Governance MCG supported the only proposal in this category, a request to Ingles Markets, Incorporated that it eliminate dual class stock that has different voting rights and dividend rights. 9. Shareholder Proposals: Directors Related MCG supported 23 of the 29 proposals (79%) in this category. MCG supported 11 proposals to declassify the board, two proposals to require majority voting for the election of directors and another in support of the right of shareholders to act by written consent. MCG supported six of 12 nominees on dissident ballots at CSP Inc. and International Game Technology. We supported a proxy access proposal at The Walt Disney Company, which would allow 3% stakeholders for three years to nominate directors for up to 20% of the board. We voted to establish a board committee on human rights at Hewlett-Packard Company and Apple Inc. since it would serve shareholders interest to encourage these companies to prioritize human rights concerns that posed controversy for the companies in the past. 6

7 10. Shareholder Proposals: Health/Environment MCG supported the three proposals in this category for this quarter. A proposal at Monsanto requests that the Company review its policies for food products containing genetically-engineered (GE) ingredients and report to shareholders on the risks, financial costs and benefits, and environmental impacts of the continued use of GE-ingredients in its food products. A proposal at Whole Foods Market, Inc. requested the Company report on the feasibility of adopting an Extended Producer Responsibility (EPR) policy for disposal of packaging. The final proposal in this category was filed at Emerson Electric Co. and requested that the Board report to shareholders on how the Company is responding to rising regulatory, competitive, and public pressure to significantly reduce carbon dioxide and other greenhouse gas emissions. 11. Shareholder Proposals: Other/ Miscellaneous MCG voted for two of the three proposals in this category that sought disclosure of political spending. We supported proposals at Accenture plc and Visa Inc., which requested the companies disclose policies and procedures for lobbying contributions and expenditures, both direct and indirect, made with corporate funds as well as payments to trade associations used for lobbying communications. We supported the proposals because publicly available data does not provide a complete picture of the lobbying expenditures and board oversight is in the best interests of shareholders. We opposed a proposal at Starbucks Corporation that sought a prohibition on the use of corporate funds for political purposes. A complete prohibition of any corporate political spending is not a reasonable approach to addressing concerns about a Company s political contributions. 12. Shareholder Proposals: Routine/Business MCG supported all three proposals in this category requesting companies separate the roles of CEO and Chairman of the board. MCG supported each of these items at Johnson Controls, the Walt Disney Company and Whole Foods Market, Inc. because research indicates an independent Chair increases the board s accountability to shareholders and more effectively oversees the CEO. 13. Shareholder Proposals: Social/ Human Rights MCG supported the three proposals in this category that proposed Family Dollar Stores, Inc., Franklin Resources, Inc. and Hewlett-Packard Company institute a code of corporate conduct based on principles set forth by the United Nations ILO concerning workplace human rights standards by its international suppliers and its own international production facilities and to commit to a compliance program by outside monitors. 7

8 Proxy Vote Summary Report Votes in Meetings Held Between January 1, 2013 and March 31, 2013 Number Voted 2013 Quarterly SURS Statistical Report Proposals For Against Abstain Withhold DNV 1 YR 2 YRS 3 YRS With Mngt Against Mngt Antitakeover Related Adjourn Meeting Adopt, Renew or Amend NOL Rights Plan (NOL Pill) Company-Specific--Organization-Related Reduce Supermajority Vote Req(s) Rescind Fair Price Provision Totals for Antitakeover Related: (89%) 5 (11%) Capitalization Appr Iss of Shrs for Priv Placement Appr/Amnd Conversion of Securities Appr/Amnd Sec Transfer Restrictions Approve Reduction in Share Capital Approve Reverse Stock Split Auth Reissuance of Repurchased Shrs Auth a New Class of Common Stock Authorize Share Repurchase Program Company Specific Equity Related Incr Auth Preferred and Common Stck Increase Authorized Common Stock Increase Authorized Preferred Stock Increase Common/Auth New Preferred Reduce Auth Comm and Prefd Stk Reduce/Cancel Share Premium Acct Totals for Capitalization: (57%) 18 (43%) Directors Related Appr Discharge of Management Board Approve Executive Appointment Change Range for Size of the Board Declassify the Board of Directors Dismiss/Remove Directors (Non-contentious) Elect Directors Elect Directors and Approve Remuneration Elect Directors (Management Slate) Fix Number of Directors Provide Proxy Access Right Require Majority Vote for the Election of Directors Totals for Directors Related: (80%) 245 (20%) 1

9 Proxy Vote Summary Report Votes in Meetings Held Between January 1, 2013 and March 31, 2013 Number Voted 2013 Quarterly SURS Statistical Report Proposals For Against Abstain Withhold DNV 1 YR 2 YRS 3 YRS With Mngt Against Mngt Non-Salary Compensation Advisory Vote on Golden Parachutes Advisory Vote on Say on Pay Frequency Amend Employee Stock Purchase Plan Amend Non-Emp Director Option Plan Amend Non-Empl Dir Restr Stk Plan Amend Nonqualified Employee Stock Purchase Plan Amend Omnibus Compensation Plan Amend Restricted Stock Plan Amend Stock Apprec Rights Plan Amend Stock Option Plan Amend Terms of Severance Payments to Executives Amnd Non-Empl Dir Omnibus Stk Pln Appr Incr in Comp Ceiling for Dirs Appr NE Dir Stk Awrds I/L/Of Cash Appr Non-Empl Dir Omnibus Stk Pln Appr or Amnd Deferrd Compens Pln Appr/Amnd Exec Incentive Bonus Plan Approve Bonus for Directors and Auditors Approve Employee Stock Purchase Pln Approve Omnibus Compensation Plan Approve Remuneration Directors Approve Remuneration Report Approve Stock Option Plan Totals for Non-Salary Compensation: (40%) 190 (59%) Reorganizations and Mergers Amend Articles/Bylaws/Charter - Organization-Related Approve Merger Agreement Approve Plan of Liquidation Approve Recapitalization Plan Approve Reorganization Plan Approve Sale of Company Assets Issue Shares for Acquisition Totals for Reorganizations and Mergers: (98%) 1 (2%) 2

10 Proxy Vote Summary Report Votes in Meetings Held Between January 1, 2013 and March 31, 2013 Number Voted 2013 Quarterly SURS Statistical Report Proposals For Against Abstain Withhold DNV 1 YR 2 YRS 3 YRS With Mngt Against Mngt Routine/Business Accept Consolidated Financial Stmnts and Reports Accept Fin Statmnts & Statut Rpts Amend Art/Bylaws/Chartr Non-Routine Amnd Art/Byl/Chartr General Matters Appoint Appraiser/Special Auditor/Liquidator Appr Alloc of Income and Divs Approve Aud and their Remuneration Approve Fin. Stmnt, Allocate Income, Discharge Dir Approve Minutes of Meeting Board to Execute Apprd Resolutions Change Date/Location of Ann Meeting Elect Members of Audit Committee Misc Proposal Company-Specific Other Business Ratify Auditors Totals for Routine/Business: (64%) 87 (35%) SH-Compensation Double Trigger on Equity Plans Stock Retention/Holding Period Totals for SH-Compensation: (0%) 4 (100%) SH-Corporate Governance Miscellaneous -- Equity Related Totals for SH-Corporate Governance: (0%) 1 (100%) SH-Directors Related Declassify the Board of Directors Elect Directors (Opposition Slate) Establish Environmental/Social Issue Board Committee Provide Right to Act by Written Consent Proxy Access Require a Majority Vote for the Election of Directors Totals for SH-Directors Related: (31%) 16 (55%) SH-Health/Environment Genetically Modified Organisms (GMO) Recycling Sustainability Report Totals for SH-Health/Environment: (0%) 3 (100%) SH-Other/misc. Report Political Contrib/Acts Totals for SH-Other/miscellaneous: (33%) 2 (67%) 3

11 Proxy Vote Summary Report Votes in Meetings Held Between January 1, 2013 and March 31, 2013 Number Voted 2013 Quarterly SURS Statistical Report Proposals For Against Abstain Withhold DNV 1 YR 2 YRS 3 YRS With Mngt Against Mngt SH-Routine/Business Separate Chairman and CEO Positions Totals for SH-Routine/Business: (0%) 3 (100%) SH-Social/Human Rights ILO Standards Totals for SH-Social/Human Rights: (0%) 3 (100%) Totals for the report: (70%) 578 (29%) 4