Winning favorable vote recommendations from the proxy advisors, ISS and Glass Lewis, certainly make a company’s annual shareholder meeting easier. However, when faced with an adverse vote recommendation, issuers should know there are still options on the table. The window for action is tight though, so preparing in advance is critical. Issuers can begin thinking through the following steps, so they can quickly move into action should there be opposition to any ballot items.
Know your shareholder base
The first step is understanding your company’s ownership structure as of the record date. This is crucial because knowing whether your company’s ownership is heavily institutional or retail may determine what strategies to implement in your engagement efforts.
For example, if your company has a large retail base, an analysis can tell you if you have enough retail votes to offset the against voting from institutions. A good rule of thumb is a 3 to 1 ratio, if you need to offset 10% in negative votes you need to have at least 30% represented by Retail. Retail votes generally come in for management at a better than 9 to 1 ratio.
Determine the level of influence the independent advisory firms have on your institutional shareholder base.
Knowing which institutional investors are influenced by ISS, Glass Lewis, or their own internal proxy voting guidelines will assist in understanding the level of impact the adverse recommendation may have on the overall voting and help identify who you need to solicit support from.
Percentages based on Top Institutional Investors detailed below
While several well-known large institutional investors maintain their own voting guidelines, they may still review the proxy advisory firms’ recommendations prior to making voting decisions. When both advisory firms recommend Against Remuneration resolutions, for example, significant effort is required to lobby investors (including those that rely on their own internal guidelines) to support the proposal.
Conclusion
Receiving an adverse recommendation from ISS or Glass Lewis can be stress inducing, but utilising advisors who are experienced in navigating similar situations will ensure the best possible outcome while allowing company personnel to focus on running the company’s core business.
