Council of Institutional Investors

CII Continues Letter-Writing Campaigns Targeting Corporate Governance Laggards
Thursday, August 28, 2014
by: Matthew Frakes

Section: CII Governance Alert




The height of the 2014 proxy season marked the peak time for CII’s yearly letter-writing campaigns to companies with “zombie” directors and/or majority-supported shareholder proposals. Between March and August, CII sent letters to 82 companies urging them to adopt the changes requested by shareholders, and the number of these companies responding to CII and implementing the requested changes is on track to fit the pattern seen in previous years.

CII has long held that boards should follow the recommendations of a majority of their shareholders, whether by implementing a proposal that received majority support or by removing a director who failed to garner a majority vote. To advocate for these practices and hold boards accountable, since 1996 CII has written to all Russell 3000 companies where a shareholder-sponsored proposal received majority support. The letters ask the firms to adopt the recommended action and report back to CII. CII has done the same since 2010 for all Russell 3000 companies with directors who received less than majority support yet remain on boards—so-called 'zombie directors.'

So far in 2014, a total of 73 shareholder resolutions at 60 companies won majority support.  This puts this year’s proxy season on track for slightly fewer than last year’s total of 93 proposals at 78 companies and well under the spike in 2012 of 114 proposals at 100 companies. Likewise, the 39 zombie directors at 25 companies in 2014 will likely fall short of the numbers for the past two years: 57 rejected directors at 37 companies in 2013 and 62 rejected directors at 41 companies in 2012.

The response rate thus far from companies that received letters from CII is promising. While a 10 percent response rate was considered high when CII first began this initiative, 37 percent of the contacted companies responded regarding majority-supported proposals and 24 percent of the companies with zombie directors contacted the Council, on pace to match the responsiveness of the previous two years in the 40 percent range.
Most company responses merely acknowledge receipt of CII’s letter and note that it has been passed on to the full board, which will take it under review. Some responses, however, detail plans to implement the shareholder-recommended changes or put a management-sponsored proposal to adopt the changes on the ballot at the next annual meeting.  Indeed, companies already have taken substantive action to implement more than 20 percent of the 73 majority-supported proposals from 2014. This number is higher at this point than it was in previous years.

As would be expected, significantly more of the shareholder proposals are implemented after more time has passed. According to the most recent data, 58 percent of the 93 majority-supported proposals from 2013 and 74 percent of the proposals from 2012 have been implemented to date. The same is true of zombie directors, though the numbers are much lower: only one of the 39 rejected directors in 2014 has stepped down from the board, while 19 percent from 2013 and 34 percent from 2012 have done so.

The fact remains that more than half of the companies that CII contacts either fail to respond and/or do not implement the shareholder-recommended changes.  CII tracks all the letters it sends and makes the responses it receives, as well as the number of consecutive years CII has sent similar letters to each company, available to members.  To view CII’s Board Accountability List, which includes information on the letter writing campaigns targeting zombie directors and majority-supported shareholder proposals, visit the Zombie’ Directors or Majority-Supported Shareowner Proposals pages of our Web site (member log-in required). 
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