Tell Pebblebrook: Don’t limit shareholder input! recommends UNITE HERE

Leading proxy advisor Institutional Shareholder Services (ISS) recommends withholding votes against members of the Nominating and Corporate Governance Committee of Pebblebrook Hotel Trust (NYSE: PEB), after Pebblebrook adopted provisions that allow only shareholders who have held 3% of company stock for 3 years to submit binding proposals for shareholders’ consideration, according to the company. With a market cap of over $2.2 billion (6/29/17), the new bylaw requires shareholders to hold roughly $66 million for three years to even propose amending a company bylaw.

ISS recently adopted a policy to make such recommendations at companies that limit shareholders’ right to amend bylaws, either through an “outright prohibition on the submission of binding shareholder proposals, or share ownership requirements or time holding requirements in excess of SEC Rule 14a-8.”

In Delaware, where approximately 60% of U.S. companies and trusts are incorporated, the right of shareholders to amend bylaws is expressly protected by statute. In Maryland, company charters or bylaws may strip that right from shareholders. By way of statute or governing documents, roughly half of listed lodging REITs now allow shareholders to submit binding shareholder proposals, without setting additional ownership and holding requirements beyond those set by SEC Rule 14-a8.

As a result, shareholders at roughly half the listed lodging REITs have an unrestricted right to submit binding shareholder proposals, either via statute or governing documents.

Shareholders’ right to amend corporate bylaws is an emerging issue. While proxy access proposals were supported by on average 29% of shareholders in 2012, that level of support rose to 51.2% by 2015. The first vote on a proposal to extend the right to amend bylaws to shareholders at Pebblebrook won the support of 30% of votes cast, and similar proposals have reached majority support at several peer companies.

“For a binding shareholder proposal to be implemented, most lodging REITs require the support of a majority of outstanding shares,” explained JJ Fueser, deputy director of research at UNITE HERE. “There must first be a broad consensus among the company’s owners. Pebblebrook should trust the ability of its shareholders to understand and evaluate the merits of binding proposals, rather than limiting the introduction of new ideas.”

UNITE HERE represents hospitality workers and is a member of the Council of Institutional Investors. Its members are beneficiaries of pension funds with over $60 billion in assets. Since 2012, UNITE HERE has worked to improve shareholder rights at hospitality REITs. For additional information, please see http://www.hotelcorpgov.org.

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