Wall Street cracks down on activist shareholders, and Jamie Dimon is glad
Dimon has chastised stockholders as ‘lazy’ for blindly following recommendations from proxy advisers on how they should vote their shares
Washington — Wall Street’s main regulator is pursuing a crackdown on shareholder campaigns that corporate chieftains say are a nuisance. Few top executives would cheer the move louder than Jamie Dimon.
Dimon has been a frequent target of social activists who want companies to take an aggressive stand on issues such as climate change and human rights abuses. He has squared off with investors who’ve urged JPMorgan Chase to cut his pay and strip him of his chair title. And he has chastised stockholders as “lazy” for blindly following recommendations from proxy advisers on how they should vote their shares.
All the hoopla has prompted the CEO of the US’s biggest bank to label annual shareholder meetings “a farce”.
So Dimon should be pleased that the US Securities and Exchange Commission (SEC) is considering rules that would make it much harder to get proposals on corporate proxies, the ballots sent out to investors before annual meetings. If the regulations are approved, it will become easier for companies to block submissions from investors who own few shares and the bar will be raised significantly for petitions to be proposed again if they’ve previously received little shareholder support, said people familiar with the matter.
The SEC plan has been heavily influenced by recommendations from the Business Roundtable, a Washington trade group that Dimon chairs, said the people, who asked not to be named because details of what the regulator will propose haven’t been made public.
Curtailing investor petitions and reining in proxy advisers are near the top of the wish lists for the Business Roundtable and US chamber of commerce
Dimon has pushed the Business Roundtable, whose members include the CEOs of some of the biggest companies, to be more active in lobbying the SEC and law makers on proxy voting rules, according to a person familiar with his work there. He sees the regulations as part of a broken corporate governance framework that imposes so many burdens on companies that many decide to stay private, the person said.
Dimon declined to comment through a JPMorgan spokesperson.
The Business Roundtable “has long been concerned about an out-of-date shareholder proposal process”, the group said in a statement. The Business Roundtable added that it is “encouraged that the SEC plans to modernise the proxy process”.
At its November 5 public meeting, the SEC also intends to propose rules that could curtail the influence of proxy advisory firms, companies that investors pay to provide recommendations on how they should vote their stock on contentious topics such as executive compensation and whether mergers should go through.
State pension funds and other big investors often rely on advice from proxy advisers such as Institutional Shareholder Services (ISS) and Glass Lewis because it’s overwhelming to monitor all the specific issues that pop up at the various companies they own shares in. Unsurprisingly, Dimon has also weighed in on proxy advisers. In 2015, he called shareholders “irresponsible” for casting votes solely based on the firms’ recommendations.
The SEC rule proposals address issues that have long been a priority of business lobbyists. They are being taken up by SEC chair Jay Clayton, an ex-Wall Street lawyer appointed by US President Donald Trump. Curtailing investor petitions and reining in proxy advisers are near the top of the wish lists for the Business Roundtable and US chamber of commerce, the biggest corporate trade group. Some investment firms have also called for the SEC to make changes.
The proposals “will reflect the experience and expertise of the commission staff who have been deeply involved in the proxy process”, said Natalie Strom, a spokesperson for Clayton. She declined to comment on specifics of the potential rule changes.
Clayton and SEC commissioner Elad Roisman, a Republican who is leading the agency’s effort, have emphasised that the regulator has solicited views from a wide range of groups in its year-long review of proxy voting rules. Clayton and Roisman have also said that the agency is focused on making changes that will ultimately benefit mom-and-pop investors.
However, a coalition of investor advocates, public pension funds and hedge funds is pushing back. Top officials from the California public employees’ retirement system, the council of institutional investors, and Paul Singer’s Elliott Management are among those who’ve signed a letter to the SEC saying it has “embarked on a series of actions that we believe may reduce investor participation in the corporate governance voting process, and is likely to undermine investor protection”.
Two SEC officials who hold Democrat seats at the agency have also been critical. In August, commissioners Allison Lee and Robert Jackson Jr opposed new guidelines for how fund managers should deal with proxy advisers.
ISS sued the SEC and Clayton on Thursday over the August guidance. ISS said that the regulator exceeded its authority by saying that its rules apply to proxy advisers’ recommendations.
ISS and Glass Lewis, which hold significant sway in determining the outcome of shareholder elections, have long been controversial. Public companies argue that the analysis the firms write to justify their recommendations can be riddled with errors. Proxy advisers reject that claim and many managers don’t seem concerned because they routinely follow the firms’ advice in voting their shares.
Under a recent version of the SEC’s plan, proxy advisers would have to share their analysis with corporate managers before showing it to shareholders, the people said. That would give public-company executives the chance to complain about alleged mistakes and seek changes. Proxy advisers might then have to show their analysis to a company’s management a second time. If proxy advisers refuse to make tweaks, companies could conceivably sue them.
“If accurate, a two stage pre-review will impose significant structural impediments to our ability to deliver independent and timely research and vote recommendations to our clients,” Steven Friedman, ISS’s general counsel, said in a statement. “There is a paucity of evidence of systemic factual errors by proxy advisers and no justification for such potential rule-making.”
Glass Lewis didn’t respond to a request for comment.
If SEC commissioners vote next week to propose the proxy rules, they would be subject to weeks or months of public comment. Commissioners would have to hold a second vote for the regulations to take effect.