2015 Proxy Season Report

Carpenter Funds’ 2015 Proxy Season Report

Majority voting and auditor independence were the focal issues for the Carpenter Funds in the 2015 proxy season, but the Funds took a slightly different approach on the majority vote issue.  No shareholder proposals on the topic were submitted, but companies that have resisted the reform despite strong support for previous proposals were approached informally.  An additional 90 S&P 500 companies were requested to provide enhanced auditor independence disclosure in their proxy statements.  The auditor independence issue is being advanced through non-shareholder proposal engagements. The Funds’ Executive Compensation Core Principles & Practices document used to guide the analysis of the executive compensation plans at the corporations in the Funds’ investment portfolios has been further updated.  The compensation plan analysis assists in the Funds’ Say-on-Pay voting and guides our engagements with companies on the executive pay issue.

Majority Voting in Director Elections

The 2015 proxy season was the 12th proxy season of Carpenter Fund advocacy for the adoption of the majority vote standard, but unlike in the previous eleven seasons we did not submit shareholder proposals on the issue.  Since 2004, Carpenter Funds have submitted 539 majority vote shareholder proposals to US corporations, with the focus on large cap companies.  This season we informally engaged those companies that have been on the previous years’ target lists, but have not adopted the majority vote standard despite strong shareholder support.  Several agreed to adopt the reform.  Today, 447 (89.4%) of the S&P 500 companies have adopted a majority vote standard.  Approximately 35% of the companies in the Russell 3000 Index have adopted a majority vote standard in director elections.

In an effort to advance the adoption of the majority vote standard at small and mid-cap companies that have largely retained the plurality vote standard, we have submitted a rulemaking proposal to the U.S. Securities and Exchange Commission requesting that they eliminate the “withhold vote” on corporate proxy forms used in uncontested elections at plurality vote companies.

Executive Compensation $$$

The Funds’ Executive Compensation Core Principles and Practices document guides the review of the executive pay plans in the Funds’ investment portfolios (Sample Core Principles and Practices Eval Form).  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.

Auditor Independence Issue

Building on our success in previous proxy seasons in securing corporate commitments to expand auditor independence disclosure, the Funds sent an Auditor Independence Disclosure Letter to 96 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 Standard (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, are large cap companies with long-term relationships with their outside independent audit firms – Auditor Independence Disclosure Target Companies.  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.  By the time of the issuance of 2015 proxy season proxy statements, dozens of additional companies had agreed to include the requested auditor independence representations.  Companies agreeing to the full range of new disclosures included Alcoa, Inc., American International Group, Inc., Archer Daniels Midland Company, Boston Properties, Inc., Cognizant Technology Solutions Corporation, Corning Inc., Discover Financial Services and The Gap, Inc.