2014 Proxy Season Report

Carpenter Funds’ 2014 Proxy Season Report

Majority voting and auditor independence continued as focal issues for the Carpenter Funds in the 2014 proxy season. The auditor independence issue was advanced through non-shareholder proposal engagements with 85 leading companies.

The Funds revised their Executive Compensation Core Principles & Practices document used to guide the analysis of the executive compensation plans at the corporations in the Funds’ investment portfolios. The compensation plan analysis assists in the Funds’ Say-on-Pay voting and guides the engagements with companies on the executive pay issue.

Majority Voting in Director Elections

The 2014 proxy season was the eleventh proxy season in which Carpenter Funds submitted Majority Vote Proposals.   Since 2004, Carpenter Funds have submitted 539 majority vote shareholder proposals to US corporations, with the focus on large cap companies.  Early positive responses to the 2014 proxy season proposals increased the percentage of S&P 500 Index companies with a majority vote standard for uncontested director elections to 87%.  Approximately 35% of the companies in the Russell 3000 Index have adopted a majority vote standard in director elections.

The 2014 Majority Vote Proposal Target List included 27 companies, a number of which have previously received Carpenter Fund proposals, such as Nucor Corporation, FirstEnergy and ExxonMobil Corporation, as well as first-time recipients such as Chipotle Mexican Grill and Kansas City Southern.

Executive Compensation $$$

The Funds revised their Executive Compensation Core Principles and Practices Evaluation Form document that guides the review of the executive pay plans in the Funds’ investment portfolios.  The Core Principles and Practices include four overarching executive compensation principles that outline sound compensation policies along with twenty-five pay practices essential to sound plan design.

While the Core Principles and Practices present compensation principles and practices that should be reflected in executive pay plans, the guidelines encourage distinctive plan design. The Core Principles and Practices Evaluation Form is used to support the Funds’ proxy voting and identify corporate engagement opportunities on executive compensation and other governance initiatives.

Auditor Independence Issue

Building on last proxy season’s success in securing corporate commitments to expand auditor independence disclosure, the Funds have sent an  Auditor Independence Disclosure Letter to 85 large-cap companies. Working collaboratively with the UAW Medical Benefits Trust, the Funds broadened their outreach this proxy season in an effort to secure greater support for improved auditor independence disclosure.

Director Election Vote Standards (S&P 500 Companies)







The Audit Firm Independence Statement entails six points of disclosure in the audit firm ratification vote portion of a company’s proxy statement.  The requested representations include the following:

  • The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent external audit firm retained to audit the Company’s financial statements.
  • The year in which the Audit Firm was first retained.
  • The Audit Committee is responsible for the audit fee negotiations associated with the Audit Firm.
  • The Audit Committee periodically considers whether there should be a regular rotation of the independent external audit firm.
  • The Audit Committee and its chairperson are directly involved in the selection of Audit Firm’s new lead engagement partner at time of mandated rotation.
  • The members of the Board and its Audit Committee believe that the continued retention of the Audit Firm to serve as the Company’s independent external auditor is in the best interests of the Company and its investors.

The companies receiving the disclosure requests, Auditor Independence Disclosure Target Companies are large cap companies with long-term relationships with their outside independent audit firms.  The requested disclosure is designed to inform investors and the market of the tenure of the company – audit firm relationship and important actions undertaken by the Board and its Audit Committee to protect audit firm independence.

As the Target Companies list indicates, a significant portion of the companies that received the disclosure letter responded positively, and will be on the growing list of companies committing to these disclosures beginning in the 2014 and 2015 proxy seasons.