The WSJ is reporting on a move by some shareholder activists to change the way votes are counted. One shareholder activist group has studied the voting results for shareholder proposals over the period from 2004 to 2014, identifying 63 cases in which the “yes” votes outnumbered the “no” votes, but abstentions caused the proposal to lose. That may be because, under the default Delaware voting standard for most matters (excluding election of directors), the required vote for approval of a matter is the affirmative vote of the holders of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter. Typically, “abstentions” are considered to be present or represented and entitled to vote, but, because they are not affirmative votes, they have the effect of votes “against” (i.e., they are counted in the denominator when calculating the vote outcome). According to the article, however, a 2013 report from CalPERS found that just under 48% of the companies in the Russell 1000 index exclude abstentions from vote counts. And a study by the activist group showed that “abstentions cut the affirmative vote share by more than 5% in 357 cases and by more than 10% in 73 cases….”
According to the article, some corporate governance activists are pushing to change the way votes are counted on shareholder proposals. These activists are submitting shareholder proposals requesting that companies amend their governing documents to provide that all matters presented to shareholders, other than the election of directors, be decided by a simple majority of the shares voted “For” and “Against” a matter, with that policy applicable to all matters unless shareholders approved higher thresholds or unless contrary to applicable laws or stock exchange rules. In one case, the company confirmed in the article that the change to the voting standard had been made (although no 8-K has been filed reporting it) even though the shareholder proposal was soundly rejected at the shareholder meeting. In another case, where a company changed its voting standard, the company had previously included a provision in its bylaws that required a vote of a “majority of the outstanding” to approve any shareholder proposal, a threshold that was higher than the threshold otherwise applied to management proposals. The proponent agreed to withdraw the proposal in one instance where the company agreed to study the idea.
Interestingly, however, according to the article, “some major institutional investors, such as Vanguard Group, say they will vote ‘no’ rather than ‘abstain’ on shareholder proposals if companies make the change the activists are seeking.” Vanguard’s head of corporate governance indicated that its “policy stance has been to vote ‘abstain’ on most environmental and social shareholder proposals where it didn’t see a compelling shareholder value argument. ‘Generally speaking, our votes are intended to not support the proposal,’ he said, explaining that Vanguard considers such matters ‘under the purview of the management and board and something shareholders shouldn’t be voting on.’ For companies that stop counting abstentions in vote tallies, that policy changes. ‘We do pay attention to the vote counting standard,’ [he] explained, and said that where abstentions don’t count, ‘we would vote against the proposal,’ rather than effectively improve its chances of winning by abstaining.”
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