Proxy Update – CalPERS Updates Voting Guidelines

   Director Tenure and Proxy Access are Most Significant Changes

On March 14, 2016, CalPERS released its 2016 Global Governance Principles (available here).  The new guidelines are shorter and more concise than the 2015 version, with a greater emphasis on the long-term, as well as environmental, social and governance factors.  Some policies have received minor adjustments or updating, while others have been removed entirely in the spirit of brevity.

However, the most significant changes deal with board tenure and proxy access.

Director Tenure – Twelve Years is Not a Charm

CalPERS’ previous policy regarding director tenure was rather broad; stating that boards should consider all relevant factors when determining if a director is independent, including “extended periods of service [which] may adversely impact a director’s ability to bring an objective perspective to the boardroom.”

CalPERS has now drawn a line in the sand on tenure.  CalPERS’ new policy states “director independence can be compromised at 12 years of service.”  For directors with tenure of twelve years or more, CalPERS’ new policy states that companies should carry out “rigorous evaluations to either classify the director as non-independent or provide a detailed annual explanation of why the director can continue to be classified as independent”.

Proxy Access – 3-year, 3%, 25% of the Board

CalPERS’ 2015 guidelines on proxy access was a one sentence policy that simply stated that shareowners should have “effective access to the director nomination process.”

For 2016, the policy now runs 2 paragraphs.  The essential elements of the policy are that CalPERS supports a 3-year, 3% threshold for shareholders to nominate up to 25% of the board.  In addition, CalPERS states that shareholders should be provided with full and accurate disclosure about those using proxy access so that shareholders can make an informed decision.  Therefore, CalPERS’ new policy states that the nominating group should be subject to the same SEC disclosure requirements and prohibitions against false and misleading statements that currently apply to proxy contests for board seats.

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We would be pleased to discuss this topic in detail.  Please feel free to reach out to your Morrow & Co. representative to arrange an in-depth discussion on the CalPERS policy changes.

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