Download Two Take Whole Foods` Tack on Proxy Access

Corp Gov Roundup: European, Global
Economic Risks; Two Take Whole Foods’
Tack on Proxy Access
By Matt Orsagh, CFA, CIPM
Categories: Corporate Governance, Proxy
It’s time to span the corporate governance globe to review important
developments in December, among them new voting guidelines in Switzerland, a
report from UK insurer Aviva on potential risks to European and global economic
growth, and two more companies follow the lead of Whole Foods Market on the
issue of proxy access in the United States.
Brazil
In Brazil, Petrobras keeps giving us good corporate governance stories. In early
December, the Brazil market regulator (CVM) fined the company’s CFO $98,000
for compromising the rights of the its minority shareowners. The CVM found that
the company used a state pension fund and development bank to vote in
directors with government ties to slots reserved by law for minority investors.
(The Brazilian government is a controlling shareowner at Petrobras.) This
follows the arrest in November of 18 individuals related to longstanding
corruption allegations at the company.
France
French fund PhiTrust has launched an engagement effort asking CAC 40 firms to
retain a one-share, one-vote standard (link in French). The efforts are meant to
forestall legislation passed early in 2014 that provides some investors with
double voting rights starting in 2016. PhiTrust claims the law would act as an
entrenchment tool for management and boards, making it harder for investors to
force change at poorly performing companies.
The planned law would especially harm the rights of foreign shareowners as it
applies only to registered shareowners that hold stock for two years, and many
foreign shareowners own bearer shares that would not qualify for the special
voting rights.
Japan
For those of you waiting for an English translation to Japan’s recent corporate
governance code — yes both of you — your wait has ended. The English version
of the code can be found at the Japanese Financial Services Agency (FSA)
website,here. The code calls for issuers to respect shareowner rights, especially
those of foreign and minority owners, and to increase engagement outside the
annual general meeting.
Of the many issues covered, the code calls for companies to: engage with
shareowners, make it easier for foreign shareowners to vote their shares and
attend meetings, provide more transparency about cross-shareholdings, and
have at least two independent outside directors and independent directors. The
Tokyo Stock Exchange will adopt the code as its listing standard starting in June
after an FSA consultation period.
Any comments are requested by the end of January.
Switzerland
In Switzerland, the Ethos Foundation published its voting guidelines for
2015.According to the guidelines, a “no” vote recommendation will now be issued
when certain governance rules are not followed. In the future, Ethos will oppose
the discharge if the board of directors does not include at least four members,
and it will refuse the election of the chairman if he also serves as CEO.
United Kingdom
UK insurer Aviva recently published what it has called a Sustainable Capital
Markets Union manifesto in response to the European Commission’s Capital
Markets Union proposals. The report states that over the coming decades Aviva
sees a new strategic risk to European and global economic growth from two
sources:
1. Unsustainable economic activity that assumes unlimited natural resources.
This creates a fundamentally flawed pricing system in capital markets.
2. Capital markets that are systematically short term. This magnifies the
problems associated with a flawed pricing system.
To tackle these challenges there are four broad areas of policy action required,
according to Aviva:
1. Better information, better companies, better growth — the more the right kind
of information is available to investors about companies, the better the
investment decisions.
2. Reward for long-term success not failure — short-termism remains in
incentives for those in the financial sector. We need to align incentives with
long-term performance and sustainability.
3. Capital for sustainable growth — Aviva believes growth has to be robust and
sustainable. Policymakers can help create that environment.
4. Improving responsible ownership — Increasingly, we are all owners of
companies through our pensions. It is crucial we all understand how our
money is used to influence and encourage responsible investment.
United States
Not long ago, we reported on the decision by SEC staff that allowed Whole
Foods to exclude a resolution for proxy access from its upcoming shareholders
meeting. The SEC agreed that a Whole Foods Market shareowner proposal
conflicted with its proxy access proposal. The shareowner proposal in question
called for proxy access if a shareowner owned 3% of the company’s shares for
three years.
The proposed Whole Foods Market proxy access proposal that “conflicts” with
the shareholder proposal requires a shareholder to hold 9% of the company’s
shares for five years. Companies have wasted no time in following the lead of
Whole Foods, as Marathon Oil and Cabot Oil are among the 10 companies that
have requested no-action letters from the SEC to exclude shareholder proposals
on proxy access due to plans to include conflicting management proposals on
the proxy ballot.
Both companies received proposals from the New York City Comptroller
requesting proxy access rights for shareholders holding 3% of shares for three
years. Marathon Oil’s proposal aims to provide proxy access for any shareholder
owning 5% for five years (for one director or 10% of the board, whichever is
greater). Cabot Oil’s proposal would provide proxy access for any shareowner
owning 5% of the company’s stock for three years (for up to 20% of the board).
Photo credit: iStockphoto/YinYang