Proxy access has been one of the big success stories in terms of the advancement of shareholder rights over the course of the 2015 and 2016 AGM seasons according to a paper published by MSCI ESGResearch, entitled: Proxy Access – 2017 Engagement Focus.
Adoption rates increased from less than 1 percent to 41.2 percent of US incorporated companies in the MSCI USA Index over the two-year period. But progress has not been uniform, and it has been companies that are most shareholder-friendly that have made the biggest advances.
Companies that have already introduced three or four of the other board accountability shareholder rights are more likely to have adopted proxy access provisions than those where progress on these issues has been more limited. And companies with entrenched boards are among those least likely to have adopted proxy access.
Arguably, these are the very companies where shareholders would most benefit from the adoption of proxy access provisions. Indeed, if shareholders had more effective tools to hold boards to account, these boards would be less likely to become so entrenched in the first place.
The report highlights that this is leading to a situation where shareholder rights now diverge quite widely, even among the largest US companies, with boards that have been most responsive to beta engagement campaigns now offering significantly enhanced rights to their shareholders compared with the companies that have yet to be targeted or the small number to have resisted the changes.
The report notes that while shareholders have sought to introduce proxy access provisions that are optimally effective for all parties, even at the most shareholder-friendly US companies, the ability of shareholders to hold underperforming boards to account has fallen short of global norms.
Alan Brett, head of corporate governance ratings research at MSCI ESG Research, says this highlights how US organizations need to get up to speed with global norms. ‘US institutions see this as a corporate governance development, whereas non-US institutions see it as a global norm,’ he points out.
He adds, however, that it will take time to fill the gap in overall board accountability and shareholder rights between the US market and global standards. ‘The current campaign is on proxy access; a few years ago it was on classified boards,’ he says. ‘There will be further improvements down the line as investors try to bring US norms up to the global standard. Investors are fighting one battle at a time. This isn’t going to be solved overnight.’
