Forty-two large-cap companies have agreed to declassify their boards in response to shareholder proposals, according to Harvard Law School’s Shareholder Rights Project (SRP), which is coordinating this investor campaign.
Twenty-one of those firms have said in regulatory filings that they plan to present management proposals to eliminate staggered board terms. Among those companies are Alcoa, BlackRock, Cigna, Janus Capital, McDonald’s, Newell Rubbermaid, Owens-Illinois, and Stanley Black and Decker.
“All of these companies should be commended for their responsiveness to shareholder concerns and their willingness to move to annual elections,” Harvard’s SRP said in a press release.
The SRP reports that these settlements represent about one-third of the S&P 500 index that had classified boards at the start of this year. As recently as 2004, 56 percent of large-cap firms had staggered board terms (typically, three classes of directors who each serve a three-year term), according to ISS data.
The settlements are a result of an expanded shareholder campaign this year; investors have filed more than 80 proposals that ask large-cap companies to declassify their boards and hold annual elections for all directors. The proponents include the North Carolina State Treasurer (25 proposals), the Illinois State Board of Investment (25 resolutions), the Nathan Cummings Foundation (17), the Los Angeles County Employees Retirement Association (15), and the Ohio Public Employees Retirement System (four).
The proponents assert that annual board elections are a best practice and “could make directors more accountable and thereby contribute to improving performance and increasing firm value.”
Investor support for board declassification has increased in recent years. In 2011, shareholder declassification proposals averaged more than 74 percent approval (of votes cast), the highest support for any resolution topic that year, according to ISS data. At early meetings this season, these proposals have continued to win strong support, earning 77.2 percent approval at Emerson Electric and an 85.2 percent vote at Johnson Controls, according to ISS data. A shareholder resolution earned almost 98 percent support at Modus Link after management endorsed it.
Wachtell, Lipton, Rosen & Katz, which represents companies, has criticized the Harvard SRP campaign. “Staggered boards have been part of the corporate landscape since the beginning of the modern corporation. They remain an important feature to allow American corporations to invest in the future and remain competitive in the global economy,” the law firm said in a client alert.