Community Health Systems shareholders ignored a recommendation from the system's board of directors and passed a proxy access proposal by a 5-1 margin.
Proxy access must now be adopted into the company's bylaws, making it easier for long-time shareholders to run an alternative slate of board candidates on the same ballot as the incumbent board of directors.
CHS, the nation's second-largest hospital company, announced the results of the vote in a regulatory filing Thursday.
In a non-binding advisory vote, shareholders also opposed by a 3-1 margin the system's current structure and executive compensation levels. Public companies such as CHS routinely hold a “Say on Pay” vote at their annual meeting to take the temperature of shareholders relative to executive compensation.
The CHS board of directors vigorously opposed this year's proxy access proposal, which was put on the ballot for the second year in a row by Connecticut Treasurer Denise Nappier on behalf of state pensioners and retirees. Connecticut's $29 billion employee pension and retirement fund owns $9.5 million worth of CHS stock and fixed-income instruments.
Last year, a similar proxy access proposal failed by the slimmest of margins— 50.3% to 49.7%.
Before this year's vote, the CHS board argued in a letter to shareholders that proxy access was unnecessary because shareholders can freely make their views known to the board. It also said that the prospect of board members having to compete for positions might dissuade qualified board members from serving.
Nappier, however, argued successfully that proxy access makes corporate boards more responsive to shareholders and has the potential to raise shareholder value as a result.
“Today's overwhelming vote is a clear victory that strengthens shareholders' input in the election of those tasked with leading the company,” Nappier said.
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 that at least 20 shareholders be part of the nominating group and set a limit of 20% of board seats to conduct proxy access voting.
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.
The $60 billion UAW trust has swayed three other healthcare companies to voluntarily adopt proxy access, said Meredith Miller, the trust's chief corporate governance officer. They are Bristol-Myers Squibb, CVS Health and Gilead Sciences.
Franklin, Tenn.-based CHS has been the target of shareholder disgruntlement this year.
Last quarter, Glenview Capital Management, billionaire Larry Robbins' New York City-based hedge fund, sold off all 11.59 million of its CHS shares, according to a regulatory filing posted Monday.
CHS' stock price has fallen, along with its earnings since last summer. Last June, the company's stock traded as high as $64 per share. It closed Thursday at $12.55.