State Board of Administration of Florida Enhances Shareowner Value Through Proxy Voting and Company Engagement
FOR IMMEDIATE RELEASE
CONTACT: John Kuczwanski PHONE: (850) 413-1254 EMAIL: john.kuczwanski@sbafla.com
State Board of Administration of Florida Enhances Shareowner Value Through Proxy Voting and Company Engagement
Tallahassee, FL – The State Board of Administration of Florida (“SBA”) continued its shareowner stewardship activities and cast proxy votes that serve to protect its investments.
Through a comprehensive set of corporate governance principles and proxy voting guidelines (available here
“The SBA’s corporate governance activities are focused on enhancing share value and ensuring that public companies are accountable to their shareowners, with independent boards of directors, transparent disclosure, accurate financial reporting, and ethical business practices and policies that protect and enhance the value of SBA investments,” said Ash Williams, Executive Director & Chief Investment Officer of the SBA.
In addition to proxy voting, the SBA actively engages companies throughout the year, at times maintaining a year-round dialogue and analysis of corporate governance issues and other reforms. Engagement of this type can be a very effective way to advocate for positive changes and improve reporting by the companies in which the SBA invests. Improved corporate disclosures are the main aim of SBA engagement, as transparent and improved comparability can help all investors to make better investment decisions.
To maximize the transparency to beneficiaries, invested companies and other institutional investors, the SBA posts proxy voting records on its website. This real-time vote disclosure occurs in advance of all annual shareowner meetings. Voting data covers every publicly traded equity security for which the SBA retains voting authority. The SBA’s current and historical proxy votes can be viewed in the Corporate Governance section of its website, available here
Highlights from the SBA’s proxy votes for the fiscal year ending June 30, 2012 included:
* Executed votes on 9,420 (6,138 in FY 2011) public company proxies covering 84,881 (56,536 in FY 2011) individual voting items-representing a 54 percent growth rate in the number of total proxy votes.
* The SBA’s proxy votes were cast in 81 countries, with the top 5 countries comprised of the United States (2,827 votes), Japan (1,173), Hong Kong (604), United Kingdom (426), and Canada (405).
* Voted 77 percent “for,” 16 percent “against,” 3 percent “withheld,” 4 percent “abstained” or “did not vote” (due to various local market regulations and/or liquidity restrictions placed on voted shares).
* Of all votes cast, 19.2 percent were against the management-recommended-vote, down from 21 percent during the same period last year.
Individual proxy topics included:
* Votes For Director Elections 80.4% (FY2011=76.7%), Votes For External Auditor 91.3% (FY2011=90.0%), Votes For Corporate Governance Proposals 66.7% (FY2011=71%)
* Votes For Say-on-Pay 77.4% (FY2011=74.6%), Votes For Proxy Access 100% (FY2011=n/a), and Votes For Environmental and Social Issues 22.6% (FY2011=47.8%)
* Among all global proxy votes, the SBA cast at least one dissenting vote at 6,605 annual shareowner meetings, or 68.2 percent of all meetings.
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* * * * * ATTENTION JOURNALISTS AND EDITORS: DESCRIPTIONS OF KEY VOTING ITEMS PROVIDED BELOW * * * * *
The State Board of Administration is a body of Florida state government that provides a variety of investment services to various governmental entities. These include managing the assets of the Florida Retirement System, the Local Government Surplus Funds Trust Fund (Florida PRIME), the Hurricane Catastrophe Fund, and over 30 other mandates.
State Board of Administration (SBA) of Florida Key proxy voting items during Fiscal Year 2012 are described below:
Board of Director Elections-Board elections represent one of the most critical areas in voting since shareowners rely on the board to monitor the performance of a company’s management. The SBA supported 80.4 percent of individual nominees for boards of directors, voting against the remaining portion of directors primarily due to concerns about candidate independence, qualifications, attendance, or overall board performance. The SBA policy is to withhold support from directors who fail to observe good corporate governance practices or demonstrate a disregard for the interests of shareowners.
* During the first half of 2012, 41 directors at 29 companies in the Russell 3000 index failed to receive majority support by shareowners. The SBA withheld votes for 95.1 percent of these directors.
* 54 percent of these companies underperformed their industry peers over a three year period.
* Only 1 in 10 of these firms has implemented a majority voting election procedures, underscoring the need for U.S. companies to move away from the older method of plurality voting.
* Directors at Mentor Graphics Corporation and Chesapeake Energy Corporation were among those receiving the lowest level of shareowner support. Other corporations experiencing director approval rates less than a majority of the votes cast included Aircastle Limited, Cablevision Systems, and Vornado Realty Trust. The SBA voted against one or more directors at each of these firms.
* Mentor Graphics had 5 directors fail to receive majority support due to the board’s failure to submit a shareowners rights plan (“poison pill”) for investor approval and extending and increasing the exercise price of a shareowner rights plan without shareowner approval.
* The two directors that were up for reelection at Chesapeake Energy Corporation received less than 30 percent of shareowner support due to the board’s failure to adequately monitor and disclose the financial activities of co-founder and CEO Aubrey McClendon, who engaged in a variety of personal transactions that posed a clear and substantial risk for conflicts of interest.
Proxy Access-Proxy access shareowner proposals, which facilitate investor-nominated director candidates, were a major focus of investors during 2012-the first year such proxy access proposals were allowed to be submitted under new SEC rules. While these proposals received quite a bit of investor attention, only a few garnered majority support. Chesapeake Energy’s investors voted almost 2-to-1 in favor of a proxy access shareowner proposal calling for shareowner ability to nominate candidates to the board of directors if they owned three percent of the company’s stock for the prior three year period. Nabors Industries’ investors also supported a similarly structured proxy access proposal. The SBA voted in favor of all nine proxy access proposals submitted by investors during the first half of 2012.
Sustainable Business Practices-The SBA generally supported investor proposals to adopt or strengthen sustainability reporting requirements and improved environmental disclosures. Improved corporate reporting allows investors to better gauge a firm’s potential environmental risks and business practices. The SBA supported 75 percent of shareowner resolutions asking companies to publish sustainability reports and 28.6 percent of shareowner resolutions asking companies to produce reports assessing the impact on local communities.
Auditor Ratification-Auditors are responsible for safeguarding investor interests and assuring financial statements are presented fairly. Therefore, auditor independence and impartiality are paramount in maintaining public trust. The SBA supported 91.3 percent of ballot items to ratify the board of directors’ selection of external auditor. Votes against auditor ratification are cast in instances where the audit firm has demonstrated a failure to provide appropriate oversight, when there have been significant restatements in the financial statements, or when significant conflicts-of-interest exist, such as the provision of outsized non-audit services.
Say-on-Pay & Executive Compensation-The SBA considers on a case-by-case basis whether a company’s board has proposed or implemented equity-based compensation plans that are excessive relative to other peer companies or plans that may not have an appropriate performance orientation. As a part of this analysis, the SBA reviews the level and quality of a company’s compensation disclosure-believing strongly that shareowners are entitled to comprehensive reporting on compensation practices in order to make efficient investment decisions. The SBA’s 2012 Annual Report on Corporate Governance provided an in-depth review of the say-on-pay regulation, a copy of which is available here
Compensation-related proxy votes during 2012 were again dominated by the ‘Say-on-Pay’ issue (“SOP”) mandated by the Dodd-Frank Act. The SBA voted to approve remuneration reports (compensation plans for named executive officers) for 68.8 percent of companies during the 2012 proxy season, very similar to our 2011 approval rate of 70 percent. At U.S. companies, the SBA voted against approximately 23 percent of all SOP voting items. On a national basis, approximately 97 percent of companies won a majority of shareowner support for their compensation plans.
Among large capitalization firms in the U.S., 12 constituent companies of the Standard & Poor’s 500 index had their compensation practices voted down by shareowners, including Abercrombie & Fitch Co., Best Buy Co., Big Lots, Chesapeake Energy, Citigroup, Cooper Industries, International Game Technology, Mylan, Nabors Industries, NRG Energy, Pitney Bowes, and Simon Property Group, Inc. The SBA voted against each of these firms’ executive compensation practices. Additionally, at Big Lots, Chesapeake Energy, Nabors Industries, and Simon Property Group, the SBA voted against one or more other executive compensation item(s) such as an omnibus compensation plan or long-term incentive plan (LTIP) adoption and/or amendment.
The following individual SOP votes made headlines during the 2012 proxy season:
* Citigroup-In April, institutional investors voted down Citigroup CEO Vikram Pandit’s $15 million pay package in a historic say-on-pay vote. Approximately 55 percent of the company’s shareowners rejected the pay plan, which also included a controversial bonus arrangement. The bonuses would allow top senior managers to collect millions of dollars if Citigroup’s operating businesses posted $12 billion in cumulative pretax earnings during 2011 and 2012. That target amount is less than half of the sum those businesses earned in 2009 and 2010. Citigroup is the first major bank and the largest company by market value to have its executive pay plan rejected by shareowners.
* Nabors Industries-The advisory vote on executive pay received only 25 percent of the votes cast, while the 2012 incentive bonus plan registered just 48 percent of the votes cast and the 2012 stock plan garnered a low 45 percent of the votes cast. At last year’s annual meeting, just 43 percent of the votes cast supported the say-on-pay proposal. In February, Nabors Chairman Eugene Isenberg agreed not to collect a $100 million termination payment that he was slated to receive after being replaced as CEO of the company in October of 2011. The payout, which would have been one of the largest in U.S. corporate history, sparked a significant amount of criticism among the company’s top shareowners.
* Chesapeake Energy-Only 20 percent of shareowners voted for management’s say-on-pay proposal. The move comes as both the IRS and SEC are investigating a controversial investment program that granted CEO Aubrey McClendon minority stakes in Chesapeake’s natural gas wells. Reuters published a report in June revealing that Mr. McClendon had taken out as much as $1.1 billion in personal loans using his well stakes as collateral.
Below are the SBA’s Say-on-Pay voting statistics through June 30, 2012, broken out for both global (U.S. and Non-U.S companies) and U.S.-only portfolios:
2012 SOP Voting
Total Votes
“For” Votes
“Against” Votes
SBA Global SOP Votes
3,486
2,494 (68.8%)
992 (27.6%)
SBA U.S. SOP Votes
2,190
1,693 (77.3%)
497 (22.7%)
Glass, Lewis & Co. 1
n/a
84.9%
15.1%
Farient Advisors 2
n/a
83%
17%
ISS 1
n/a
2,273 (88.4%)
299 (11.6%)
1 Actual data, covering SOP recommendations at U.S. firms in the Russell 3000 index, for shareowner meetings occurring on or before June 30, 2012. 2 Actual data, covering SOP recommendations at U.S. firms within the S&P 1,500 index, for shareowner meetings occurring on or before June 30, 2012.
For other compensation-related voting items apart from SOP, over the last fiscal year the SBA supported 52.7 percent of all non-salary (equity) compensation items-while supporting 76.7 percent of executive incentive bonus plans, and 43.2 percent of management proposals to adopt restricted stock plans in which company executives or directors would participate (51.2 percent for the amendment of such plans).
The SBA prepares additional reports on corporate governance topics and significant market developments, covering a wide range of shareowner issues. Historical information, including prior reports, can be found within the governance section of the SBA’s website, available here.
John Kuczwanski, Communications Manager Florida State Board of Administration 1801 Hermitage Boulevard, Suite 100 Tallahassee, Florida 32317-3300 (850) 413-1254 – Phone (850) 363-0200 – Mobile (850) 413-1255 – Fax www.sbafla.com
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