VSM Proposals: Soup and Crackers
Following up on my previous posts on shareholder proposals related to virtual shareholder meetings (VSMs), the votes for 2021 are in, and the results are interesting. I had made what I thought was an easy prediction: “These shareholder proposals will not garner any meaningful support." It turns out I was wrong. Very wrong. We're talking 2016 presidential election polling wrong.
The Humane Society's proposal at Cracker Barrel Old Country Store, Inc. received 58% support at the company's (in-person) annual meeting on November 18, while the same proposal at Campbell Soup Company received only 23% support at Campbell's (virtual-only) annual meeting on December 1. (I say "only" 23% because of the large delta from 58% and the fact that the proposal did not pass, but 23% is a pretty respectable level of support for any shareholder proposal, especially one filed for the first time.)
Interpreting the Results
Comparing voting results for a shareholder proposal filed at different companies isn't always easy, and I'm not able to come up with a solid explanation for why this was a split decision. One interpretation could be that shareholders will get more upset if you force them to attend an annual meeting in person as opposed to if you force them to attend online. But we're only using a sample size of two.
When the same proposal filed at a number of companies receives very different levels of support, two factors often come into play. The first is the makeup of the shareholder base at each company. Here's what Cracker Barrel and Campbell Soup's proxy statements disclose about their largest shareholders:
Sadar Biglari (activist investor): 8.7%
Susquehanna Securities: 5.9%
EARNEST Partners: 5.4%
Directors and officers: 0.9%
Mary Alice D. Malone (director and descendant of legacy owner): 17.64%
Bennett Dorrance (director and descendant of legacy owner): 14.87%
Archbold D. van Beuren (director and descendant of legacy owner): 2.88%
Other directors and officers: 0.14%
I don't know how these very different shareholder profiles may have impacted the vote, but it's worth showing how different they are. At Cracker Barrel, the top five shareholders include an activist who has waged five proxy fights at the company since 2011 (he didn't this year, but he's still not happy) and two funds that you rarely see ranking near BlackRock and Vanguard. On the other hand, at Campbell Soup, over 35% of the outstanding shares are held by three descendants of John T. Dorrance, the man who invented canned condensed soup, served as the company's president for 16 years, and died as the sole owner of the company, and are also on the board.
The second factor that often plays a role in varying voting outcomes for the same proposal at different companies is how the proxy advisory firms recommended their clients vote at each company. In this case, I'm told by a reliable industry source that ISS and Glass Lewis both recommended voting in favor of The Humane Society's proposals at Cracker Barrel and Campbell Soup. I had predicted that ISS and Glass Lewis would recommend voting against, following the lead of the investors most vocally opposed to the idea of virtual meetings. But after re-reading their voting policies and now knowing their recommendations, it appears that ISS and Glass Lewis are fine with companies using a VSM platform as long as it supplements and doesn't replace an in-person meeting. In other words, the proxy advisory firms can get behind VSMs and proposals pushing for hybrid meetings, but not virtual-only.
Support from both ISS and Glass Lewis still surprises me since The Humane Society didn't distinguish between hybrid and virtual-only. In fact, it's pretty clear that The Humane Society is fine with virtual-only meetings. Their proposal asks that the company's shareholder meetings "be held either in whole or in part through virtual means (i.e., webinar or other on-line system) and that virtual attendance be allowed." I thought a proposal giving the company the option to have a virtual-only meeting would raise objections from ISS and Glass Lewis, or at least one of them. I guess not so much.
My friend, James McRitchie, gave me his reaction to the 58% vote for The Humane Society's VSM proposal at Cracker Barrel via Twitter:
Understandable confusion. Shareholders definitely want the option of attending virtually. The Humane Society should have left out "either in whole or" from their resolved clause and all shareholders would have voted for.
My take is that the shareholder community has seen the VSM revolution and realizes that VSMs, whether in whole or in part, will be the norm well beyond the pandemic. This includes the proxy advisory firms. And a large portion of investors won't have a problem with virtual-only meetings going forward now that they've lived through two years of nothing but virtual-only.
You'll recall there was a third company that received The Humane Society's VSM proposal: Brinker International. After its No Action request to exclude it was denied by the SEC staff, Brinker agreed to hold a virtual-only annual meeting, which prompted The Humane Society to withdraw its proposal, so we don't have a third vote to look at. Stay tuned for more VSM proposals, both pro and con, in the spring.