Could shareholders accelerate the pace of regulatory reform at US companies by taking matters into their own hands? Probably not says the Council of Institutional Investors and Shareowners.org.
According to a new report commissioned by the leading US investor body, The Council of Institutional Investors (CII) the idea that owners could enable proxy access at implementing at individual companies by submitting proposals and approving bylaw (Articles of Association) changes is “fraught with obstacles”.
Distortions in the ownership rocess, such as restrictions on investors’ rights to amend the bylaws, supermajority voting requirements for bylaw amendments and multiple-class stock structures with unequal voting rights, would prevent shareowners from adopting proxy access on a company-by-company basis, says the study. Specifically, at between 38 percent and 43 percent of companies in three different market indices, the S&P 500, the Russell 1000 and the Russell 3000, shareowners are either unable to amend the bylaws or face the significant challenges of supermajority vote requirements. The report, “The Limits of Private Ordering: Restrictions on Shareholders’ Ability to Initiate Governance Change and Distortions of the Shareholder Voting Process”, highlights that nearly 40 percent of US companies are incorporated outside of Delaware making it unclear whether binding shareholder proposals on proxy access would be valid under respective State law. To compound these problems, at between seven and nine percent of companies, the capital structure is not one-share, one-vote, but instead another arrangement that gives disproportionate influence to holders of supervoting shares – an arrangement that could make shareowner approval of a bylaw change allowing proxy access very difficult.