1. Proxy Access and Shareholder Proposals
Preparing for the Next Proxy Season:
Trends and Key Considerations
2018 Proxy Season Updates:
Proxy Access and Shareholder Proposals
Frank Zarb
Partner
Proskauer
theknowledgegroup.org
Know. Lead. Succeed
October 26, 2017 1

2. Preparing for the Next Proxy Season: Trends and Key Considerations
Proxy Access
Proxy Access is now a majority S&P 500 position
Proxy Access refers to the ability of shareowners to place their nominees for director on a company’s proxy ballot. While available in other countries, this right had not traditionally been available in the U.S.
But as of the end of the 2017 proxy season, over 60% of S&P 500 companies had adopted proxy access, almost all in the last three years
How we got here
Effective in 2011, the SEC adopted Rule 14a-11 pursuant to Section 971 of the Dodd-Frank Act, which would have mandated proxy access for public companies. Rule 14a-11 was vacated in 2011 by the US Court of Appeals. See Business Roundtable and Chamber of Commerce v. Securities and Exchange Commission, slip op (DC Cir., 22 July 2011)
Also in 2011, the SEC amended Rule 14a-8(i)(8), narrowing companies’ ability to exclude shareholder proposals regarding proxy access
Frank Zarb
Partner
Proskauer
theknowledgegroup.org
Know. Lead. Succeed
October 26, 2017 2

3. Preparing for the Next Proxy Season: Trends and Key Considerations
Proxy Access
How we got here (cont’d)
Until the 2015 proxy season, most issuers took a “wait and see” approach with respect to amending their bylaws to permit proxy access, to allow greater flexibility in responding to future shareholder proposals under amended Rule 14a-8(i)(8)
In November of 2014, the NYC Comptroller launched its first large-scale campaign, targeting 75 issuers with a proxy access proposal as part of its “Boardroom Accountability Project” for the 2015 proxy season
The NYC Comptroller continued its campaign in 2016 and 2017, and individual shareholder proponents also submitted a number of proxy access shareholder proposals
Frank Zarb
Partner
Proskauer
theknowledgegroup.org
Know. Lead. Succeed
October 26, 2017 3

4. Preparing for the Next Proxy Season: Trends and Key Considerations
Proxy Access
Over 400 companies, and more than 60% of S&P 500 and 85% of S&P 100 companies have now adopted proxy access, compared to only 15 companies before 2015
Consistency has emerged in most of the key proxy access terms:
3% ownership
3 year holding period
Full voting and economic ownership required
Number of nominees: greater of 2 or 20% of the board
Incumbent proxy access nominees are counted against the current-year maximum
Up to 20 shareholders may aggregate holdings to reach ownership threshold
Funds under common management are counted as a single holder
Frank Zarb
Partner
Proskauer
theknowledgegroup.org
Know. Lead. Succeed
October 26, 2017 4

5. Preparing for the Next Proxy Season: Trends and Key Considerations
Proxy Access
SEC Staff’s Shareholder Proposal Position
Proposals to adopt proxy access
In 2017, the SEC continued its practice of allowing companies to exclude proposals as “substantially implemented” under Rule 14a-8(i)(10) if the company adopts a market-standard proxy access bylaw
Exclusion on the grounds of “substantial implementation” was allowed even when
The proposal sought a 25% director cap rather than the market standard 20% adopted by the company seeking relief;
The proposal sought no restriction on group size constituting the 3% ownership, rather than the market standard of 20 adopted by the company seeking relief; and
The proxy access bylaw contained other provisions not contemplated by the shareholder proposal, including requiring “net long” ownership, qualification requirements and other restrictions on nominees
Frank Zarb
Partner
Proskauer
theknowledgegroup.org
Know. Lead. Succeed
October 26, 2017 5

6. Preparing for the Next Proxy Season: Trends and Key Considerations
Proxy Access
“Fix it” proposals
Shareholder proposals seeking to amend the terms of existing proxy access bylaws were more common in To date, very few have received a majority vote
“Fix it” proposals have included proposals to reduce the ownership requirement, aggregation cap, nominee cap, and other changes
The SEC staff has denied relief to exclude a number of these proposals on the basis of substantial implementation
In March of 2017, the staff granted relief to companies seeking to exclude proposals seeking to increase the maximum group size to 50 that argued, using data, that the requested change would unduly restrict shareholders’ ability to meet the minimum ownership requirements at the particular company; the staff later denied relief to exclude a proposal seeking to remove the aggregation cap entirely
When the staff has granted relief to exclude “fix it” proposals, it appears to have put the burden on companies to demonstrate that the requested change would not in practice materially impact the operation of the existing provision
Frank Zarb
Partner
Proskauer
theknowledgegroup.org
Know. Lead. Succeed
October 26, 2017 6

7. Preparing for the Next Proxy Season: Trends and Key Considerations
Proxy Access
Use of Proxy Access
In November 2016, GAMCO Investors Inc. and affiliated funds disclosed that they had nominated an individual for election to the board of directors of National Fuel Gas Company pursuant to the company’s recently adopted proxy access bylaw
Mario Gabelli, Founder, Chairman and CEO of GAMCO: “proxy access was a friendlier approach than a proxy contest at National Fuel Gas.”
The company subsequently announced that it would not include GAMCO’s nominee in the proxy statement, because only stockholders that acquire their shares “in the ordinary course of business and not with the intent to change or influence control” of the company are eligible to nominate a proxy access candidate under the company’s bylaws
Proxy Access as negotiating tool?
This past September, the NYC Comptroller sent a letter to 140 companies with proxy access: “…we believe the availability of proxy access will enable shareowners to have more meaningful discussions about particular nominees where portfolio company boards appear to lack the relevant expertise and diversity.”
Frank Zarb
Partner
Proskauer
theknowledgegroup.org
Know. Lead. Succeed
October 26, 2017 7

8. Preparing for the Next Proxy Season: Trends and Key Considerations
Proxy Access
Where things stand:
Considerations for companies that have adopted proxy access:
Will proxy access be used going forward?
Will shareholders use proxy access as a negotiating tool with management?
What is the risk of receiving a “fix it” proposal?
Considerations for companies that have not adopted proxy access:
Wait and see?
Adopt proxy access preemptively?
If receive a shareholder proposal, let shareholders decide?
Frank Zarb
Partner
Proskauer
theknowledgegroup.org
Know. Lead. Succeed
October 26, 2017 8

9. Preparing for the Next Proxy Season: Trends and Key Considerations
Proxy Access vs. Proxy Contest
Expensive
Minimum Ownership and Holding
Limit on Number of Nominees
Control Intent
Disclosure Limit
Proxy Access NO
YES
Proxy Contest
Frank Zarb
Partner
Proskauer
theknowledgegroup.org
Know. Lead. Succeed
October 26, 2017 9

10. Preparing for the Next Proxy Season: Trends and Key Considerations
Shareholder Proposals and Engagement: Sustainability and Environmental Issues
Institutional investors have expressed new interest in sustainability and environmental issues, providing credibility and voting power
BlackRock: engagement priorities list “climate risk” disclosure as one of its five priorities
Vanguard: 2017 proxy voting guidelines state it will evaluate shareholder proposals related to the environment on the merits of each proposal, and may support those with a demonstrable link to long term shareholder value
Surge in shareholder proposals:
The total number of environmental shareholder proposals increased to over 140 proposals in 2017, with over 50 going to a vote
Average shareholder support increased significantly in recent years
Climate change proposals received majority support at Occidental Petroleum, PPL Corp (a utility holding company), and Exxon Mobil
Frank Zarb
Partner
Proskauer
theknowledgegroup.org
Know. Lead. Succeed
October 26, 2017 10

11. Shareholder Proposals and Engagement: Board Diversity
Preparing for the Next Proxy Season:
Trends and Key Considerations
Shareholder Proposals and Engagement: Board Diversity
Institutional investor focus on board diversity
Vanguard’s August 2017 Proxy Voting Report: “Companies should be prepared to discuss – in both their public disclosures and their engagement with investors – their plans to incorporate appropriate diversity over time in their board composition.”
BlackRock’s engagement priorities for : “over the coming year, we will engage companies to better understand their progress on improving gender balance in the boardroom …. If there is no progress within a reasonable time frame, we will hold nominating and/or governance committees accountable for an apparent lack of commitment to board effectiveness.”
State Street published a report citing research that companies with women on their boards have “stronger financial performance as well as fewer governance-related issues such as bribery, corruption, shareholder battles and fraud.”
Shareholder Proposals
Board diversity shareholder proposals were common in 2017, but not with those voted on averaging about 28% approval; commentators expect an increase in diversity proposals in 2018
Update disclosure
Companies are considering, or already have, updated their proxy statement disclosure to further address board diversity beyond the minimum requirements of Regulation S-K
Frank Zarb
Partner
Proskauer
theknowledgegroup.org
Know. Lead. Succeed
October 26, 2017 11