Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

Developments this week included  another no vote at Beazer Homes and a three-year frequency cycle being approved at Tyson Foods.  Smaller reporting issuers who published a proxy statement before the SEC granted an exemption are seeking to limit the damage.

Beazer Homes No Vote-Positive Results Don’t Count

 53.7% of the shares voted opposed Beazer Homes’ executive compensation.  According to Riskmetrics’ corporate governance blog, the reasons for the no vote included increased CEO compensation in the face of negative shareholder returns.

We do not know if the no vote was merited or not, but it is pretty easy to take the other side of the argument.    While total shareholder return may have been negative, significantly better financial results were reported during the three year period.  The net loss in 2008 was $951,912,000, 2009 net loss was $189,383,000 and 2010 net loss was $34,049,000.  The CEO did not receive a bonus in the prior year and had not received equity grants for several years.  It seems dangerous to us that advisory firms are recommending no votes in challenged industries based on negative shareholder returns where demonstrable improvements have been made at specific companies.  But once again the damage by the no vote may have been self inflicted because the CD&A did not seem to emphasize relevant facts.

Tyson Foods Means Nothing

  Tyson Foods did succeed in having a three year frequency vote approved but published reports to date seem to ignore the fact that 69.8% of its voting power was controlled by a single insider.  So this is not a surprise and is not predictive of other issuers.  Some also tout the positive results on the say-on-pay vote.  We question that, as 11% of the shares were voted against executive compensation, and with 69% controlled by an insider, this means roughly 36% of the non-insiders are unhappy with executive compensation.

Smaller Reporting Issuers Seek to Avoid Future Votes Despite What They Said In Their Proxy Statements

Temporarily exempt from say-on-pay rules are smaller reporting issuers.  For those that have filed proxy statements before final rules were published, language is being included in 8-Ks reporting voting results emphasizing the new exemption.  See CSP Inc:
“Accordingly, as provided in the Adopting Release, we are not required to comply with the say-on-pay and say-when-on-pay regulations until our first Annual Meeting on or after January 21, 2013. At that Annual Meeting, we currently anticipate that we would seek advisory shareholder votes regarding approval of executive compensation and the frequency of votes for approval of executive compensation, and we will subsequently disclose in Form 8-K our decision about how frequently we will conduct shareholder advisory votes on the compensation of executives.”

Frequency Votes

By our count, 54 issuers have reported the results of frequency votes.  No issuer with a market cap of over $10 billion has had a triennial vote approved (eight have tried).  For issuers with a market cap of over $1 billion to $10 billion, only one issuer, other than controlled Tyson Foods, has had a triennial frequency approved (five have tried).  Three issuers with a market cap between $200 million and $1 billion have had a triennial frequency approved, but two of these issuers were controlled (six have tried).  Eleven of twelve issuers with a market cap of less than $200 million that have sought a triennial frequency have had it approved but many of these issuers are controlled.
Three issuers have had a biennial frequency approved, but all were controlled (seven have tried).

No Votes

Here we tracked issuers with a market cap of over $1 billion and eliminated issuers with greater than 30% control (lower control thresholds would not have changed this significantly).  There were 17 issuers included in this data.  Ten issuers, or 59%, had no votes of five percent or less.  Twelve issuers, or 70%, had no votes of ten percent or less.

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