Dodd-Frank requires a thicker-skinned board: opposition cant be avoided, so stop being so sensitive to voting outcomes and make sure you are not lowering the bar to curry shareholder favor.

• Author: Mills, Joseph
• Position: PROXY VOTING

EARLY IN MY 26 YEARS as a proxy consultant I learned that it was important to have a sense of each issuer's tolerance for opposition votes on proxy issues. In the early years of the governance reform movement many companies could be quite resolute and were willing to resist shareholder activists, oftentimes for years. Of course there were also some companies that never wanted to be seen as the "bad guy" and generally gave in to activists. But at the time of the corporate accounting scandals (i.e. Enron, Tyco etc.) some 10 years ago the balance shifted, and I now find that the majority of issuers are much more sensitive to shareholder pressure and much more willing to accede to shareholder demands.

Thus over the last decade or so most companies have given up their takeover defenses and agreed to various governance and compensation reforms. Some of this was high minded--"we want to have best-in-class governance." Some of it was arrogance--"we don't need takeover defenses, we would never resist a legitimate offer." Still others were out of resignation--"takeover defenses are going away." I must confess I never really knew whether this was coming from the board or from management seeking to insulate the board. Either way, many companies barely put up a fight as governance advocates pushed through their reform items.

In fairness, it is also true that the rise of ISS and the other proxy advisors along with majority voting and the increased use of withhold voting in director elections has made resisting reform initiatives very difficult and sometimes pointless. Advisory votes are no longer really advisory.

Looking back, what did companies get for being so accommodating? More and more demands for reform, to the point where activists are seriously encroaching in areas that have traditionally been under the discretion of management and the board. Now, with the Dodd-Erank legislation in place, shareholders have the ability to challenge management's compensation via say on pay. And pending a legal challenge, shareholders will soon have proxy access. All of this has the potential to have a material impact on companies. At the very least it will occupy more of management resources and directors' time.

You may ask what's wrong with any of this? Shareholders are the owners of the company and they should have the ability to curb executive compensation, and they should have the ultimate discretion in a takeover situation. No disagreement there.

Looking...