Over the next two weeks, shareholder proposals seeking independent board chairs will be on the ballot at Wells Fargo & Co., Lockheed Martin, and other well-known U.S. companies.
On Tuesday, this topic will go to a vote at Wells Fargo, which also faces a proxy access proposal. Independent chair resolutions also are slated for votes this week at General Electric, Edison International, Johnson & Johnson, Lockheed Martin, and Janus Capital Group. At Janus, management has remained neutral on the shareholder proposal, and the board has named an independent chairman who will take office on April 27. Next week, independent chair proposals will be on the ballot at American Express, General Dynamics, PepsiCo, and Sterling Bancorp.
The resolutions are part of an expanded campaign by the American Federation of State, County, and Municipal Employees and retail investor activists. As of April 16, ISS was tracking at least 44 proposals on this topic; seven resolutions have been omitted after corporate challenges. In 2011, 30 independent chair proposals went to a vote, and four resolutions received majority support. The average approval was 34.6 percent, up from 28 percent in 2010, according to ISS data.
While independent chairs are widely accepted in the United Kingdom and other markets, most large U.S. companies have opted to combine the roles of chairman and CEO, while appointing an independent lead director.
About 19 percent of S&P 500 firms have an independent board chair, while another 18 percent have a separate non-independent chair, according to ISS’ latest Board Practices study. Smaller firms have been more willing to embrace this reform: 29 percent of S&P SmallCap firms and 25 percent of S&P MidCap firms have independent chairs.
Proponents of independent board chairs assert that this structure provides greater oversight of management and can ensure that the board is not dominated by a long-serving CEO. In response, companies often argue that a lead independent director can provide effective oversight, and that a board should have the flexibility to select the best person suited to be the chair. Some firms also point out that appointing an outgoing CEO as the board chair can help in the transition to a new chief executive.
While activists continue to urge boards to appoint independent chairs, several well-known firms have recently combined the positions. Among those companies are Walt Disney Co., Pfizer, Motorola Solutions, and DTE Energy.