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Presentation on theme: " 2014 PROXY SEASON PREVIEW AND 2015 PREVIEW NACD ATLANTA Sept. 17, 2014."— Presentation transcript:


2 2014 PROXY SEASON HEADLINES Engagements and Settlements Alter Meeting Landscape Contested Meetings Pick Up Steam in Q2 and Q3 Concerns Over Accountability, Responsiveness and CEO Pay Drive Opposition to Directors Record Say-on-Pay Volume Fails to Produce Wave of Negative Results Independent Chair, Political Spending and Lobbying Disclosure Top Shareholder Proposal List 2

3 ISS | Institutional Shareholder Services Inc. Top 10 Meetings for 2014 CompanyDissidentIssueOutcomeSignificance AllerganPershing Square (Ackman) & Valeant Pharmaceuticals Unsolicited offer; proxy fight Town Hall cancelled. Bidders pursued special meeting, which is scheduled for Dec.18. The bleeding edge of M&A and engagement; backlash expected. Chipotle Mexican Grill CtW Investment GroupSay Nay on PayLowest MSoP result (23.4%) to date; failed equity plan. Say nay on pay campaign draws support despite performance. Coca-ColaDavid Winters/ Wintergreen Funds Oppose equity plan; lobby Warren Buffett Plan passed with ease (83.2%), but Buffett abstains his 9% stake (72% w/Abs). Renewed attention on cost of equity plans. Commonwealth REIT Corvex (Keith Meister) et alRepeat consent to remove board. Shareholders vote out board; elect new board with Sam Zell as chair. Board decapitation follows years of shareholder complaints. Darden Restaurants Barrington Capital and Starboard Value Proxy fightBoard sells Red Lobster unit w/o vote. Starboard drops special meeting request. Meeting date: Oct. 10. Boards retains legal right to act, but there may be consequences. Healthcare Services Group Multiple Proposal Proponents Board responsivenessEntire slate receives sub-50 percent support. Repeat majority votes on independent chair (2X) and majority voting (3X). Rare full-board withhold may attract more attention. Nabors IndustriesMultiple Proposal Proponents Challenges to directors’ responsiveness, pay, proxy access policy and vote counting rules. Oppose three directors: Lin (49.6%), Lombardi (46.4%) and Yearwood (46.4%) and MSOP (40.3%); vote count, majority vote and proxy access shareholder proposals pass. Half-hearted efforts at reform fail to sway swing voters. TargetNoneRisk oversight failures related to data breach. Seven nominees elected with opposition ranging from 19.7% to 37.1% (Jim Johnson) Will investors hold board accountable for risk oversight? Vornado Realty Trust Multiple Proposal Proponents Record-setting lack of responsiveness. Oppose three nominees: Mandelbaum (25%), Lynne (39%) and Tisch (39%); 8X loser on majority voting; 5X loser on annual elections; 2X loser on independent chair. Will directors go onto investors’ “no-fly lists?” Wal-MartCTW and other proponentsContinuing silence on bribery investigation; pay concerns. Discounting insiders votes: 40% for independent chair; 38% for clawback; 34% for lobbying disclosure; 35% against MSoP, 29% against SR Walton and 34% against Duke. Will investors force Walton family to listen to concerns? 3

4 ISS | Institutional Shareholder Services Inc. Fewer Fights Reach Votes, Battling Average Drops Contest Volume Surges in Q2 › Slow start/fast finish Two fights in Q1; 20 in Q2 › “Less” success at ballot box 59% in ‘14 vs. 68% in ’13 › Impact of settlements Boards shrink slates › Hydra-headed dissidents › Median market cap rises $260m in ‘14 vs. $141m in ‘13 U.S. H1 Proxy Contests (‘09-’14)

5 ISS | Institutional Shareholder Services Inc. 2014: US Director Support Hits New Heights 5 2014 Average Support for R3K* Nominees: 96.2% ISS Recommends Against/Withhold on 7.4% of 16,616 R3K nominees More than 90% of nominees have drawn support of 90% or more *Based on results for 16,175 nominees at meetings of Russell 3000 firms Data does not include abstentions

6 ISS | Institutional Shareholder Services Inc. Vote No/Say Nay Campaigns CompanyInvestor(s)IssueSay Nay on Pay Outcome (Votes Cast For and Against) Burger KingCtW Investment Group Just Vote No (JNV) on two nominees (Comp Panel) YesBehring (94.4%) and Sicupira (94.4%); MSoP (93.4%) Chipotle Mexican GrillCtWYesMSoP (23.4%) and equity comp plan (45%) fail Coca-ColaWintergreen (David Winters) Oppose equity planNoEquity Plan (83.2%); w/Warren Buffett’s abstention (72%) Domino’s PizzaCtWJVN on Pay Panel ChairYesBalston (69.3%); MSoP (75.9%) Duke EnergyNYCity Funds & CalPERS JVN on four nominees (Regulatory Policy Panel) NoBernhardt (93.9%), Hyler (94.6%), Rhodes (94.7%) and Saladrigas (85%) KKR Financial Holdings LLCCtWOppose MergerNoDeal Passed (98.7%) McDonald’sCtWYesMSoP (94.2%) Skechers USACtWJVN on two nomineesNoRappaport (93.6%) and Siskind (98.8%) Starwood Property TrustCtWJVN on two nominees (includes Pay Panel Chair) NoBronson (96.7%) and Dishner (92.1%) Wal-MartCtWJVN on Pay Panel ChairYesDuke (86.8%/discounting insiders votes 66%) and SR Walton (88.9%/71%); MSoP (86.4%/65%) Wendy’sCtWJVN on Pay Panel ChairNoSchwab (92.6%) WillbrosLaborers’ International Union of NA JVN on two nomineesNoDiPaolo (85.2%) and Lonergan (91.1%); MSoP (46%/LIUNA didn’t explicitly oppose) YRC WorldwideInt’l. Brotherhood of Teamsters JVN on three nominees (Comp Committee); Oppose equity plan YesDoheny (97.8%), Hoffman (98.1%) and Kneeland (98%); MSoP (85%); Equity plan (89.1%) 6

7 ISS | Institutional Shareholder Services Inc. Triennials Create MSoP Tsunami in 2014 7 Number of MSoP Votes, Jan. 1 – June 30, 2012-2014

8 ISS | Institutional Shareholder Services Inc. Say on Pay Support Remains High 8 2014 Average MSoP Support at R3K* Firms: 91.7% ISS Recommends Against 290 of 2,397 Proposals Nearly 8 of 10 proposals drew 90% support or higher *Based on vote results for 2,345 Russell 3000 firms Data does not include abstentions Voting Dissent

9 ISS | Institutional Shareholder Services Inc. P4P Concerns Drive Investor Dissent 9 ISS Concern Levels at R3K Companies that Received <70% Support for MSoP

10 ISS | Institutional Shareholder Services Inc. Qualitative Analysis Drives MSoP Advice 10 2. ISS Qualitative Analysis Quantitative Concern vs. Final Vote Recommendation Medium P4P Concern

11 ISS | Institutional Shareholder Services Inc. Mix of CEO Equity Awards is Changing 11 New Proxy Disclosure Rules Stock Option Expensing – 2006 Russell 3000 CEO Equity Pay Mix by Value

12 ISS | Institutional Shareholder Services Inc. Shareholder Proposal Headlines Changing of shareholder proposal guard as E & S top G › E&S concerns account for 53% of resolutions › Record 460 E&S proposals › Three most prevalent proposals combines for 141 proposals, but just eight majority votes › Independent chair (4), political spending (1) and lobbying disclosure (3) › Breakout year for calls to limit accelerated vesting following a change in control › Big support numbers for annual elections (84% of votes cast) and majority voting (59%) › Six majority votes for proxy access 12

13 ISS | Institutional Shareholder Services Inc. Leading Shareholder Proposal Topics Proposal# on ballots# votedSupport (% votes cast) # with majority support Independent Chair64 (1 W/D)6331.14 (Allergan, Healthcare Services Group 2X (HSG), Staples & Vornado Realty Trust 2X) Political Spending42 (1 W/D)3828.11 (Dean Foods) Lobbying Disclosure37 25.53 (Lorillard, SLM & Valero Energy) GHG/Methane/Risk30 (2 W/D)2824.60 (22.1% on climate risk/stranded carbon) Majority Voting29 (1 W/D)2858.517 (Notables: HSG 3X, Nabors Ind. & Vornado 8X) Equity Retention29 (1 W/D)2822.80 Written Consent28 38.40 Pro rata Vesting23 36.64 (Notable: Boston Properties, Dean Foods & Valero) Repeal Classified Board171683.215 (Notables: Netflix 3X, QEP 2X & Vornado 5X) Human Rights15 21.90 Special Meetings14 45.35 (Notables: Applied Materials and Duke Energy) Proxy Access15 (1 W/D)1339.4 / SEC Clones: 54.7 6 (Abercrombie & Fitch, Big Lots, Boston Properties, Int’l. Game Technologies, Nabors 3X and SLM) Political Activity14 (2 W/D)117.90 Simple Majority Vote12 67.38 (Notables: A&F, Chipotle Mexican Grill & iRobot) Sustainability12 30.70 13

14 ISS | Institutional Shareholder Services Inc. Coming Attractions for 2H 2014 and Beyond 14 Contentious Fights Pack Pipeline as M&A Activity Soars Inversions and Other Tax Issues Drive Deal-making and Restructurings Board Refreshment Draws More Attention from Investors Accountability Battles Over Bylaws and Risk Oversight Trouble Building in the REIT Sector Low Tide Year for Say on Pay in 2015

15 ISS | Institutional Shareholder Services Inc. SERVICE EXPERTISE COVERAGE QUALITY INNOVATION Questions Pat McGurn +1 301.556.0402

16 ISS | Institutional Shareholder Services Inc. This document and all of the information contained in it, including without limitation all text, data, graphs, charts (collectively, the “Information”) is the property of Institutional Shareholder Services Inc. (“ISS”), its subsidiaries, or in some cases third party suppliers. The Information may not be reproduced or redisseminated in whole or in part without prior written permission of ISS. The Information has not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other regulatory body. None of the Information constitutes an offer to sell (or a solicitation of an offer to buy), or a promotion or recommendation of, any security, financial product or other investment vehicle or any trading strategy, nor a solicitation of a vote or a proxy, and ISS does not endorse, approve or otherwise express any opinion regarding any issuer, securities, financial products or instruments or trading strategies. Issuers mentioned in this document may have purchased self-assessment tools and publications from ISS Corporate Services, Inc. (“ICS”), a wholly-owned subsidiary of ISS, or ICS may have provided advisory or analytical services to the issuer. No employee of ICS played a role in the preparation of this document. Any issuer that is mentioned in this document may be a client of ISS or ICS, or may be the parent of, or affiliated with, a client of ISS or ICS. The user of the Information assumes the entire risk of any use it may make or permit to be made of the Information. ISS MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE INFORMATION AND EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, TIMELINESS, NON- INFRINGEMENT, COMPLETENESS, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION.. Without limiting any of the foregoing and to the maximum extent permitted by law, in no event shall ISS have any liability regarding any of the Information for any direct, indirect, special, punitive, consequential (including lost profits) or any other damages even if notified of the possibility of such damages. The foregoing shall not exclude or limit any liability that may not by applicable law be excluded or limited. 16

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