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A corporate governance movement to make it easier for shareholders to call special meetings, by lowering the required level of investor support, has gathered momentum in the past year.
But companies have begun fighting back with what campaigners say amounts to a spoiler tactic designed to thwart their efforts. JPMorgan won support for the status quo in a contentious vote earlier this week, and the issue is set for another showdown at eBay later this month.
The ability of shareholders to call special meetings is a powerful weapon for investors who want to oust directors or force other changes at listed companies outside of the regular schedule of annual meetings.
While the right is exercised only rarely, campaigners say the mere threat can be enough to pressure companies to respond to investor demands. Examples include Allergan, where activist Bill Ackman demanded such a meeting during a hostile takeover battle.
Shareholders have filed formal proposals to make it easier to call special meetings at a record 61 US-listed companies this year, according to the corporate governance consultancy ISS Corporate Solutions. Last year, 24 proposals were filed and attracted an unusually high average shareholder backing of 42 per cent.
“It’s being watched closely,” said Peter Kimball, head of advisory at ISS Corporate Solutions.
At JPMorgan, Kenneth Steiner — one of the most prolific sponsors of shareholder proposals — called on the bank to accede to future demands for a special meeting if 10 per cent of shareholders wanted one.
But the bank responded that “a small minority of shareholders should not be entitled to utilise the mechanism of special meetings for their own interests” and also that there were “significant costs” associated with such events.
At its annual meeting in Texas this week, JPMorgan sought “ratification” of existing its rules, which require 20 per cent backing among shareholders before a special meeting can be held. By putting forward its own motion, the bank was able to omit Mr Steiner’s proposal from the ballot.
Similarly, the S&P 500 lender Capital One put forward a proposal at its annual meeting earlier this month to ratify its existing rules, omitting a shareholder motion to lower the threshold.
The company said that its own proposal provided “a more effective method to commence further engagement on the topic of special meetings, rather than a vote on the stockholder proposal”.
By pushing more radical shareholder proposals off the ballot, companies are engaging in “gamesmanship”, said Rosemary Lally of the Council of Institutional Investors, whose members have combined assets of more than $3.5tr. “It’s not a very democratic process when you do it that way.”
JPMorgan’s management proposal received 58 per cent shareholder backing and Capital One’s just over half — less support than is typical for management proposals but enough to pass. ISS had recommended shareholders vote against the proposals at both companies.
“We asked our shareholders about a threshold that is at or lower than 400 of the S&P 500 companies,” a JPMorgan spokesman said. “Our shareholders have spoken with their vote.”
eBay is seeking ratification for its existing 25 per cent threshold at its annual meeting in California on May 30. “The company believes that this management proposal is an effective means to obtain stockholder viewpoints and engage with stockholders,” it said.
While shareholders have the right to quiz management at annual meetings, campaigners point to high profile corporate problems such as Wells Fargo’s fake bank accounts scandal to argue that serious issues can emerge between the gatherings.
“They’re just trying to thrown down a roadblock,” said John Chevedden, another shareholder campaigner who has put forward proposals to lower the threshold for special meetings. “Who’s the company to say you can’t vote for it this year?”
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