We often hear companies – particularly those with a smaller market capitalization and/or that don’t have publicly contested proxy matters – complain about their inability to secure meetings ahead of their votes with influential proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis (GL).
We’ll leave to others the ongoing debate over the role of proxy advisory firms, but we would like to pass along actionable insight from a recent client experience involving an important proxy matter.
In our client’s recent situation, each of ISS and GL recommended against one or both of two ballot items, including re-election of a director. Our client was not granted a meeting with either firm before they made their recommendations.
Even though the client’s top shareholders – principally, hedge funds – had indicated support for all ballot measures in conversations the company had with them, a significant number of these shareholders automatically voted with ISS or GL. As the votes started to roll in, we and the company’s proxy solicitor advised our client it was time to take action.
The proxy solicitor was able to discern how the investors had voted and flagged the “no” votes. The company and we then made calls directly to the portfolio managers (PMs) at those funds, who in every case did not know how their firms had voted. Each PM said that they would advocate to get the vote changed, and they did.
There are three lessons to learn from this experience:
- Many firms – even smaller hedge funds where you’d think the PMs have more direct control over proxy matters – delegate voting to their back office, which often votes automatically with the proxy advisors’ recommendations.
- A good proxy solicitor is essential. Not only can they tell you who is likely to vote in line with the recommendations from ISS and GL, but they also can accurately determine how specific investors are voting.
- However, most proxy solicitors don’t have the front office (PM) relationships necessary to get a vote changed. And PMs can often successfully intervene in cases where they disagree with a proxy advisor’s recommendation, so good working relationships with your company’s investors really do matter. This is especially true for hedge funds, where PMs have broader discretion (and influence) than their counterparts at larger, long-only institutions.
Abernathy MacGregor has been helping boards of directors and executives manage corporate communications challenges for more than 30 years. Please contact us here to schedule a conversation about how we can assist with proxy matters.