Proxy Access: The Ultimate Weapon

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On a recent conference call with our Board Advisory Services faculty, we invited Anne Sheehan, director of corporate governance for the California State Teachers’ Retirement System (CalSTRS), to provide her perspective on how CalSTRS plans to use the recent proxy access regulations.

For background, CalSTRS is the second largest public pension fund with over $134B under management. CalSTRS is a long-term shareowner and is considered a passive investor. Their mission is to act as the steward for California state teachers’ retirement funds—ensuring that California’s K-14 professors and teachers (kindergarten through community college) have sufficient funds available when they retire. Approximately half of CalSTRS’ portfolio is invested in equities across roughly 7,000 companies. Typically CalSTRS’ investment is around 0.5 percent of outstanding stock per company.

Anne’s comments were extremely important for directors of publicly traded companies, as CalSTRS leverages corporate governance practices to add value and minimize risk to their portfolio. CalSTRS looks to directors to oversee delivery of long-term growth and value for shareholders. It does not have a political agenda; it’s all about long-term value creation.

Aside from shareholder value creation, the goals of Anne’s team are focused on creating a dialogue with companies and boards. Importantly, the majority of CalSTRS requests are resolved through dialogue.

During our meeting last week, Anne provided a brief summary of recent proxy access rules—SEC Rule 14a-11 and amended SEC Rule 14a-8(i)(8)—and what they mean for directors. While many organizations have provided detailed descriptions of these rules, Anne emphasized the following four key points:

  1. Boards need to proactively engage in shareholder communications and dialogue. While boards need to be aware of shareholders concerns and desires, boards do not have to do as all shareholders request. Frequently shareholders perceptions are simply based on not knowing why.
  2. The new proxy access rules level the playing field.
  3. If a board and/or senior management disregards and/or avoids a shareholder’s request for information, proxy access is the tool of last resort.
  4. Proxy access is seen by large investors as the “ultimate weapon” to influence a board.

Net: If your board is looking for an independent, third party to help conduct a confidential and customized in-boardroom program on strategy, the current environment, or succession planning; or for assistance conducting CEO and/or director succession planning, or exchange-mandated board evaluations, NACD’s Board Advisory Services faculty of 100 percent current directors and leading governance experts is ready to help your board advance exemplary board leadership. NACD’s Board Advisory Services (BAS) team is poised to help boards perform as strategic assets for their shareholders and senior management.

Don’t wait until it’s too late; contact us at inboardroom@NACDonline.org or call 202-572-2101.

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