For the second year in a row, Community Health Systems faces anxious institutional shareholders seeking to overturn the way it elects its board of directors.
Company officials argue that the proposal those investors have put on its shareholder ballot, which would make it easier for dissident shareholders to run a competing slate of directors against the incumbent board, is unnecessary because investors already have ready access to the board. It would also discourage qualified board members from wanting to serve if they faced the prospect of an annual election fight, the company said in its proxy materials.
“We believe that the proposal submitted by the proponent takes a 'one size fits all' approach to proxy access without considering the company's corporate governance practices, which ... already provide stockholders with a meaningful opportunity to hold the board accountable in the nomination and elections of directors,” the board wrote.
The latest vote on so-called “proxy access” will be taken at the Franklin, Tenn.-based hospital chain's annual shareholder meeting May 17. Connecticut State Treasurer Denise Nappier, the lead proponent of the measure, put proxy access on the CHS shareholder meeting's agenda for a second time after losing by the narrowest of margins at last year's annual shareholder meeting, 50.3% to 49.7%.
Connecticut's $29 billion employee pension and retirement fund, which owns $9.5 million worth of CHS stock and fixed-income instruments, isn't the only major institutional investor backing the proposal. New York City's employee pension and retirement fund and the UAW Retiree Medical Benefits Trust are also backing proxy access. At other firms, the California State Teachers' Retirement System, California Public Employees' Retirement System, TIAA-CREF and the Vanguard Group have joined in investment pools backing proxy access.
Under the most common form of proxy access, nominating shareholders must have owned at least 3% of a company's common stock for at least three years. Companies will often require at least 20 shareholders be part of the nominating group and set a limit of 20% of board seats subject to proxy access voting.
The push for proxy access is just part of the latest wave of shareholder activism that seeks to shake up the way U.S. corporations are managed and governed, including in the healthcare sector. Giant funds are intent on modifying the behavior of companies they deem unresponsive to their needs.