Proxy proposal season is here. Which sector will attract the most?

We are entering the time of year where U.S. companies will increasingly be receiving shareholder proxy proposals for next year's proxy season. SEC Rule 14a-8 allows a shareholder that has continuously held at least $2,000 in market value or 1% of a company's voting securities for at least one year to have his or her proposal placed alongside management's proposals in the company's proxy materials and be voted on by shareholders at the company's annual meeting. These proposals are most commonly corporate governance related including takeover defense, shareholder rights and executive compensation issues, but also include social and environmental issues.

Under Rule 14a-8(e)(2) a shareholder proposal must be received at the company's principal executive offices not less than 120 calendar days before the date the company's proxy statement was released to shareholders in connection with the previous year's annual meeting. That means companies that hold their annual meetings during the April to June proxy season will likely have a 14a-8 proposal deadline in the months of November, December, and January. 

Based on 2011 proxy filings, approximately two-thirds of Russell 3000 companies have a deadline to submit proxy proposals in the months of November and December. Companies receiving these proposals will often work with their advisors to determine the best course of action - reach out to the proponent to work out a compromise to keep the proposal off the ballot, allow it to go to a vote, or possibly seek a no-action letter from the SEC to exclude the proposal if the shareholder has not complied with the rule's procedural requirements or there's a substantive basis for exclusion. Companies seeking a no-action letter were successful 62% of the time in 2011.

While the requirements to submit a proposal under Rule 14a-8 are very low (i.e. $2,000 in stock held for a year), the reality is most public companies, especially small cap, non-index companies, will not be receiving one. According to FactSet SharkRepellent data, over the last four years there have been 3,532 14a-8 shareholder proxy proposals submitted at 847 distinct companies. 86% of these proposals were submitted at S&P 1500 companies. In fact, less than 7% were submitted at a company that was not in any major stock index (e.g. Russell 3000, S&P 1500, Nasdaq 100).

In terms of market capitalization, the median and average market cap of the 373 distinct companies that received a shareholder proposal in 2011 is $7.7 billion and $21.7 billion respectively. Companies in the financial sector attracted more proposals than any other industry since 2008 including Bank of America Corporation, JPMorgan Chase & Co., and Citigroup Inc. who were among the top five companies receiving shareholder
proposals over the period.

The data used to compile this research spolight is from the FactSet Corporate Governance database, SharkRepellent. Learn more about SharkRepellent.
 

This story was contributed by John Laide, Senior Product Manager.