ELS Shareholders Reject Investor Proposal 4
Shareholders of Equity LifeStyle Properties Inc. (ELS) have defeated a shareholder proposal regarding reporting political contributions.
ELS reported after the 2013 annual meeting held on Wednesday (May 8) that "Proposal 4" was defeated by a vote of 17,605,297 against to 15,149,777 for with 5,191,599 abstentions. There were 1,123,645 broker non-votes.
Three other proposals, concerning re-election of 10 directors, appointment of an independent accounting firm and a non-binding resolution on executive compensation, easily passed.
According to ELS's proxy statement, Reinvestment Partners of Durham, N.C., holders of 45.8758 shares, proposed that the board should authorize the preparation of a report, updated annually, disclosing:
1. Company policy and procedures governing political contributions made to legislators, regulators, and for ballot initiatives, including any done on our company’s behalf by trade associations. The disclosure should include both direct and indirect contributions and grassroots communications.
2. A listing of payments (both direct and indirect, including payments to trade associations or others) used for direct and grassroots communications, including the amount of the payment and the recipient.
3. Membership in and payments to any tax-exempt organization that writes and endorses model legislation on either the federal, state or local municipal level.
4. Description of the decision making process and oversight by the management and Board for
a. direct and indirect political contributions or expenditures; and
b. payment for grassroots expenditures.
Proposing Stockholder Supporting Statement
The proxy contained the following statement:
"As shareholders, we encourage transparency and accountability in the use of staff time and corporate funds to influence legislation and regulation both directly and indirectly. We believe such disclosure is in shareholders’ best interests. Absent a system of accountability, company assets could be used for policy objectives contrary to Equity Lifestyle Properties’ long-term interests.
ELS has spent company resources in 2008 on state and municipal level political activities, according to a number of news articles which would affect rent control ordinances, especially in the state of California. These figures may include expenditures to influence legislation or regulation in states that do not require disclosure. As such, ELS does not disclose its contributions to tax-exempt organizations that write and endorse model legislation, such as the company’s $50,000 contribution to the Prop. 98 campaign in California.
We encourage our board to require comprehensive disclosure related to direct, indirect and grassroots political communications."
The ELS board voted unanimously recommending that shareholders vote against the proposal, saying it was unnecessary and would not be in the best interests of the company or its stockholders.
In its proxy statement, the company stated:
"The board believes that the above proposal represents the interests of a small minority of stockholders, who seek to reduce the rate of rent charged by the company at certain of its properties by implementing or maintaining rent control regulations in certain jurisdictions. The board believes, as evidenced by the proponent’s supporting statement, that the proposal is an attempt to implement or maintain rent control regulations by drawing attention to or dissuading the company from making political contributions in opposition to such regulations.
As part of the company’s effort to realize the value of its properties that are subject to rent control, it made certain political contributions in 2008 in support of Proposition 98 in California, which if approved would have phased out rent control in California. The company’s goal is to achieve a level of regulatory fairness in California’s rent control jurisdictions, and in particular those jurisdictions that prohibit increasing rents to market upon turnover. Such regulations allow tenants to sell their homes for a price that includes a premium above the intrinsic value of the homes. The premium represents the value of the future discounted rent-controlled rents, which is fully capitalized into the prices of the homes sold. In the company’s view, such regulations result in a transfer to the tenants of the value of the company’s land, which would otherwise be reflected in market rents. The Company has also discovered that certain municipalities considered condemning the Company’s properties at values well below the value of the underlying land based on artificially reduced rents. In the Company’s view, a failure to articulate market rents for sites governed by restrictive rent control would put the Company at risk for condemnation or eminent domain proceedings based on such artificially reduced rents. Such a physical taking, should it occur, could represent substantial lost value to stockholders. The Company is cognizant of the need for affordable housing in these jurisdictions, but asserts that restrictive rent regulation does not promote this purpose because tenants pay to their sellers as part of the purchase price of the home all the future rent savings that are expected to result from the rent control regulations, eliminating any supposed improvement in the affordability of housing. In a more well-balanced regulatory environment, the company would receive market rents that would eliminate the price premium for homes, which would trade at or near their intrinsic value.
The company has a policy that requires all political contributions to be approved in writing by the office of the company’s general counsel. This policy does not prevent the company from advocating a position, expressing a view, or taking other appropriate action with respect to any legislative or political matters affecting the company or its interests.
Like most companies in the United States, the company participates in a number of trade organizations and industry groups, and makes payments to these organizations and groups, including membership fees and dues. These associations endeavor to achieve goals that include enhancement of the public image of the company’s industry, education about the industry and education about issues that affect the industry, industry best practices, and legislative activity related to matters that affect the industry as a whole and not just the company. These trade organizations are supported by, and represent, many other companies and groups. As such, there may be instances where an association’s political stances on certain issues may diverge from the company’s views.
The company is committed to complying with laws and regulations governing federal and state political contributions, including all applicable disclosure requirements, and adheres to the highest standards of ethics and transparency in engaging in any political activities.
The company believes this proposal is duplicative and unnecessary, as a comprehensive regulatory system of reporting and accountability for political contributions already exists. Because recipients of the company’s political contributions generally must disclose the identity of donors and the amount of their contributions, this proposal, if adopted, would impose additional costs and administrative burdens on the company without conferring a commensurate benefit to stockholders. Additionally, given the company’s limited use of corporate funds for these purposes, the preparation of the report requested in this proposal would result in an unnecessary and unproductive use of company resources."