The Intersection: May 2014

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Of Axis and Allies in the Proxy Wars

by James Baril

It’s that time of year.  March Madness is over, baseball season has begun and the corporate annual meeting season is fully under way.  Of course, most Americans are not setting up their fantasy proxy leagues or board brackets.  But, for many shareholder activists and investor relations professionals, this is the high season.

This year companies are facing more than 400 proxy initiatives (not including those that have been withdrawn), according to Proxy Monitor’s 2014 Scorecard.  According to the Ernst & Young Center for Board Matters, the most common issue relates to the review or reporting of lobbying activities, the second most common is related to carbon emissions and new issues are emerging like consumer data protection and corporate tax strategy.  The vast majority of these proposals come from groups with a tie to organized labor or a social, religious or public policy agenda.  As a matter of fact, according to Proxy Monitor, in 2012, 99 percent of all shareholder proposals were sponsored by institutional investors with a tie to such organizations.

For example, Clayton Williams Energy Inc. is facing pressure to review its political contributions, specifically, contributions to the NRA and other conservative groups.  The pressure is not just from an investor group – the New York City pension funds – but also from the New York City comptroller, a Democratic city official with political influence.

Perhaps that is why more companies are turning to public affairs firms to help them navigate these proxy battles.  It’s not that the proxy wars have shifted in our direction; it’s that the public affairs and political battles are now being turned toward the boardroom.  Who better to help navigate these battles than the veterans of the old battlefields?

So, as companies navigate this new front for shareholder engagement, here are some of the tenets of public affairs and stakeholder engagement to consider:

  • Map the stakeholders in advance of engagement.  It should be no secret which issues a company may be facing this year or next.  Nor will it be a secret which dissenting groups will be involved.  Identify those groups in advance, and map the potential allies you can engage, as well as the potential allies your opponents may engage.
  • To spend capital tomorrow, you have to build it today.  Don’t wait until the proxy has been filed to begin to engage your potential allies on the issue.  Begin now to build a relationship with them.
  • Frame the debate first.  Define the issue before your opponents can do so.  There are two sides to every story – make sure to get yours out before your opponents frame the debate in a way that will be difficult to defend.
  • Find the areas where you can align. Engagement often begins by finding where you can agree – even if the areas where you don’t are broad.  In this case, base your position on a value proposition for shareholders since they are the ones who will decide if the issue goes to a vote.

A great example of these rules of engagement in action is Goldman Sachs’ success to keep the lobbying disclosure proxy off their ballot.  In that case, Goldman’s lead director, James Schiro, conducted a national tour to meet with key stakeholders to discuss their concerns and develop a solution that met both party’s needs to the best extent possible. Another great example is Apache Corp., a Texas-based oil and gas company, which has battled environmental activists in recent years.  They successfully built a strategy of stakeholder engagement to support their efforts.  In their case, they turned to a trusted socially responsible investment firm to build a relationship and create a trusted and respected ally.  Since they have done so, they have not faced any environmental proxy battles, according to Proxy Monitor.

Unfortunately, not all stakeholder engagement efforts lead to these successful resolutions outside of the ballot box.  In those cases, there are other public affairs tactics that are being brought to bear, such as media relations, messaging support and grassroots activation.  However, even with these tactics, another stakeholder rule of engagement remains important: remember, your opponent today may be your ally tomorrow.  Advocate for your position, but don’t burn the bridges that may unite you on this or other issues down the line.

Finally, unlike in the sports analogies above, if you win, don’t hold the trophy up too high.  It’s best to be magnanimous in victory and graceful in defeat – lest you put yourself in a position to be the one with a bulls-eye on your back for other activists in future years.

Shareholders

James Baril

Partner

214-259-8411 \ jbaril@voxglobal.com