James Copland, senior fellow and legal policy director at the Manhattan Institute for Policy Research.

General counsel can now sigh with relief—the 2019 proxy season has closed, and their companies can examine what the votes really meant.

Both shareholder activists and corporate management claimed victories, suffered losses, and see a cloudy future with the U.S. Securities and Exchange Commission considering proxy changes.

James Copland, senior fellow and legal policy director at the Manhattan Institute for Policy Research, noted that only 6% of shareholder proposals received majority votes—down considerably from 11% in 2017 and 10% in 2018. That’s a positive trend to Copland, whose organization is a pro-business, free market think tank that produces the ProxyMonitor.org database.

Number of Shareholder Proposals by Type, 2019 (Fortune 250) Photo: Manhattan Institute for Policy Research

Of the 275 proposals at Fortune 250 firms in 2019, the data show that 40 resolutions requested companies to split their chairman and CEO roles. It was the most frequent type of resolution. All 40 failed.

Copland said he thinks management was able to defeat the proposals because there is “no clear empirical statement that separating these positions generates share value.”

He explained, “The broader issue here is investors are loathe to go with a one-size-fits-all governance structure. These usually pass only if there’s a problem at the company. Shareholders are not going to rock the boat if the company is doing well.”

On the other hand, activist shareholders can point to three social-issue proposals that received majority votes: One seeking a report on corporate political spending at Cognizant Technology Solutions; one requesting a report on risks from opioid sales at Walgreens Boots Alliance; and one asking for a report on diversity, including the company’s Equal Employment Opportunity Commission data, at the Travelers Companies Inc.

But observers can’t just look at what proposals won a majority vote, according to Danielle Fugere, president and chief counsel for As You Sow, a nonprofit group promoting environmental and social corporate responsibility. The group frequently supports environmental and social proxy proposals.

“It was a very good season for working with companies,” Fugere said. “We were able to achieve many withdrawals of proposals in exchange for a company’s commitment to act.”

She pointed to agreements and withdrawn resolutions on climate change at American International Group Inc., Amazon.com Inc., General Electric Co. and Verizon; on gender diversity at Caesars Entertainment and Eastman Kodak Co.; and on plastic pellet pollution at Chevron Corp., Exxon Mobil Corp. and Phillips 66 Co.

When proposals did go to a vote, Fugere said the resolutions often earned tallies in the 30% and 40% ranges. “There’s no 50% requirement here,” Fugere explained. “The proposals are not mandatory; they are requests. If you get one in three shareholders, that is a strong signal to the company that it needs to take some action or shareholder pressure will increase.”

She cited as good signs a 33% vote on a climate change resolution at Chevron; a 42% vote on mitigating health risks of coal at Duke Energy Corp.; and a 44% vote on consumer packaging at Starbucks Coffee Co.

“And a petrochemical resolution at Exxon got 25%,” Fugere added. “That’s important because it was the first year for this proposal and 25% is high for the first time.”

Both Copland and Fugere spoke of problems with how the SEC handles the proxy process.

Fugere said the SEC blocked climate change proposals from the ballot this year that would have appeared in prior years. “I think it’s political,” she said. “I saw it particularly in the oil and gas arena. In some cases [the SEC] said companies had substantially already complied with a request, when in fact they hadn’t.”

Copland co-authored a report last year calling for proxy reforms, such as eliminating the requirement that institutional investors vote all items on a proxy statement; or adopting standards to improve proxy advisory firms’ accuracy, transparency and accountability. He said he really hadn’t seen any progress made on such measures in 2019.

Copland noted the SEC held a proxy roundtable last November to discuss possible changes, and it has put the process on its rulemaking agenda.

“I do think there’s a consensus among commissioners to do something,” he said. He argued that something is clearly wrong when three “gadfly” activists can dominate the proxy process, as happened in 2019 when they filed 38% of the proposals.

Fugere, however, argued against changes that might tamp down shareholder activism.

“There is just no proof that there is an existing problem here,” she said. “The success of shareholders in engaging companies on environmental, social and governance issues is driving the call for change. But success in moving companies to do better for the world and for the company and for shareholders is not a problem.”

Fugere said the proxy process was created to give shareholders more input, and it is doing that.

“The fact that support rates [on proposals] are increasing shows what shareholders care about, and it flies in the face of saying that it needs to be slowed down. The system is working now.”