Risk & Compliance

Proxy Season Quieter in 2004, Says ISS

Institutional Shareholder Services urged its clients to withhold votes from director nominees at only 32 percent of companies this year, compared w...
Stephen TaubJune 18, 2004

The 2004 proxy season was less confrontational than it has been in recent years, according to an analysis by research firm Institutional Shareholder Services.

In fact, said the ISS, the trend this season saw corporations listening to and acting upon reasonable shareholder concerns. Sure, there were a number of highly charged cases like Disney, Safeway, MBNA, and Federated Department Stores, and a widely publicized “withhold vote” campaign. Yet, for all this bluster, the ISS urged its clients to withhold their votes from director nominees at only 32 percent of companies this year, compared with 38 percent last year and 52 percent in 2002.

The ISS cited several reasons for the change. In 2002 and 2003, many recommendations for withholding votes were directed at companies that “lacked basic best practice ingredients like independent key committees and, in the case of many boards at small- and mid-cap firms, had no key panels in place at all,” asserted the ISS its report.

Many corporate boards of directors were also more responsive to shareholder resolutions and to their sponsors. Many boards stopped ignoring majority votes on shareholder proposals and started voluntarily implementing positive change.

As a result, compared with the more contentious 2003 season, 2004 saw a decline of more than 5 percent in shareholder proposals making it to the ballot and a decline of 66 percent in proxy fights, according to the ISS.

“Unfortunately, the season-opening drama that unfolded around Michael Eisner and the Disney board overshadowed the positive corporate governance changes that were taking place at other companies,” said Patrick McGurn, senior vice president and special counsel at ISS, in a statement.

Indeed, the ISS “watch list” is half the size it was last year, added McGurn, thanks to responsive boards such as those at Boise Cascade, Citigroup, and General Electric, which appointed independent lead directors; at Praxair, which put its poison pill up for shareholder approval; and at the roughly 50 companies that declassified their boards.

In 2003, the ISS recommended that votes be withheld from audit-committee members at several hundred companies because the audit firms were permitted to conduct non-audit work. For that reason, ISS recommended that clients vote against ratification of the outside audit firm for 7 percent of companies in 2003, but for only 4 percent of companies in the 2004 proxy season. The 2004 figures total fewer than 75 companies, including only three in the Standard and Poor’s 500, according to the ISS.