Looking Beyond the $200M Oops!

The Friday On My Mind… series features end of week thoughts on a variety of issues impacting investor relations, the markets and the investment community, from Chris Taylor, EVP, Global Research, Thought Leadership & Partnerships

News was made this week when a Delaware court agreed with a group of investors that contested the buyout price of Dell Inc.’s 2013 buyout by management and private equity. Good things came to some of those who waited, as the judge, who agreed that the Michael Dell-led buyout group paid too little (to the tune of $6B) for the company, awarded close to $35M to a small group of investors that contested the purchase price.

Left out in the cold, however, was the mutual fund behemoth, T. Rowe Price. T. Rowe also objected to the purchase price but its objection was thrown out due to the fund company’s inadvertent vote in favor of the merger at the price that the Dell buyout group proposed. The Wall Street Journal reports that this voting error cost T. Rowe close to $200M!

The Journal piece does a good job of detailing how T. Rowe’s standing instructions to support management in merger votes and a bit of human error combined as the culprits in the Powerball-sized mistake. We’ll save our opinions on the proxy system and self-dealing by management in MBO’s for a later date.

Rather, we thought it would be a good time to focus on T. Rowe’s recent proxy voting record on issues, such as executive compensation, governance issues and other matters like bylaw amendments, that impact hundreds of companies every year. Below is a table using 2015 voting data pulled from Ipreo’s Corporate Governance database that classifies T. Rowe’s votes across key proposal categories according to its support of management’s recommendations.

2015 Voting Data Table

Click thumbnail to enlarge

It’s clear that T. Rowe does not have a standing instruction to vote in favor of management’s recommendations across all issues. In fact, its votes against management’s preferred outcome are significant.

  • In more than 90% of its votes on Proxy Access, T. Rowe did not support management’s recommended vote.
  • T. Rowe is a tough vote on Bylaw Amendment proposals as well, voting against more than 25% of the non-routine proposals and more than 23% of the routine amendment proposals.
  • Takeover Defenses don’t sit well with T. Rowe either, as the firm voted against management’s recommendations more than half the time.

T. Rowe’s Dell mishap is not a reflection of the firm’s approach to proxy voting. T. Rowe takes voting and considers the issues seriously. The firm publishes an annual voting summary that also serves as a de facto voting policy statement. Additionally, while T. Rowe is known to subscribe to the services of the two primary proxy advisors, ISS and Glass Lewis, it does not treat their opinions as gospel, often casting votes that diverge from their recommendations. Additionally, T. Rowe’s portfolio managers are not reticent to partake in discussions regarding the voting stance the firm takes.

These factors point to the impact that investor relations can have on the outcome of a shareholder vote by forging relationships with the governance teams at major institutional shareholders. Ipreo detailed best practices in governance outreach in a 2014 Better IR Special Report.

We will continue the discussion on the convergence of IR and governance during a panel session at next week’s Annual NIRI Conference. Hope to see you in San Diego!