• 04 Feb 2014 at 5:04 PM

Let’s Make Proxy Season Fun Again

It’s that time of year, to sift through all of the statements and ballots and missives from Carl Icahn. Time, maybe, for a few trips to whatever godforsaken hellholes these companies choose to make their headquarters. Time, all of it, to be bored to death. But not if Myra K. Young has anything to say about it; her potentially tranformative idea? Make every annual general meeting an awards show.

Shareholder Myra K. Young has submitted a proposal to be included on Caterpillar’s annual-meeting ballot asking fellow stockholders: “Which of the following proxy advisors do you think deserve cash awards for the usefulness of information they have provided to Caterpillar shareowners?” Presumably, a list including ISS, Glass Lewis and smaller rivals like Egan-Jones Ratings Co. would follow.

Ms. Young suggests a first prize of $20,000, a second prize of $15,000, a third prize of $10,000 and a fourth prize of $5,000. She said stoking competition among the firms could lead to better and more transparent advice.

Caterpillar has asked the Securities and Exchange Commission for permission to exclude the measure from its ballot. SEC rules permit companies to ignore shareholder proposals under certain circumstances….

Ms. Young submitted similar proposals at Costco Wholesale Corp. and Amazon.com Inc. in 2012 and Cisco Systems Inc. in 2013, according to regulatory filings. Costco and Amazon were allowed to omit the measure, with regulators in Amazon’s case noting that “the proposal seeks to micromanage the company to such a degree that exclusion of the proposal is appropriate.”

Cisco was not. The proposal received support from less than 1% of shares cast at its November meeting.

Proposal Pits Shareholder Advisers Against Each Other—For Cash Prize [WSJ MoneyBeat blog]

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Comments (2)

  1. Posted by Quant me maybe... | February 4, 2014 at 8:30 PM

    Only a title Matt Levine could get away with.
    Only a title Matt Levine has the chops to backup with content.

    >Accusatory Philosopher.

  2. Posted by @corpgovnet | February 7, 2014 at 8:05 PM

    Not only fun but votes would be based on much better information. Right now, only a relatively small number of shareowners get any analysis at all because they don’t subscribe to a proxy advisory service. With the proxy advisory contest, all shareowners would get multiple analyses and contestants would be incentivized to spend more on their efforts (we estimate proxy advisors spend about $2,000 per proxy). Competition breeds better analysis.

    Large funds, such as Vanguard, Northern Trust, BlackRock and Fidelity have little incentive to monitor their portfolios and take an active role in challenging management and boards. Since they hold diverse mostly indexed portfolios, any benefit they could obtain through such actions would equally benefit competitors, while they would bear all the costs (free rider problem).

    The role of active monitoring to take corrective action has been taken up by activist hedge funds, who acquire a significant but non-controlling stake in a corporation and then try to alter the company’s business strategy initially through persuasion but sometimes through a follow-on proxy contest. Where there is no activist hedge fund, such as at Caterpillar, there is little if any active monitoring ($2,000, the average amount spent by proxy advisors, doesn't buy much and even that only goes to subscribers). Having a proxy advisor contest will be like getting advice from competing hedge funds.