Update: Shareholders at three lodging REITs have approved management charter amendments granting shareholders the right to initiate bylaw amendments: Host Hotels [NYSE: HST], Diamondrock Hotels [NYSE: DRH] and RLJ Lodging [NYSE: RLJ]. Unofficial results from Chesapeake Lodging [NYSE: CHSP] suggest a majority of shareholders support establishing the same rights there (while voting down any additional ownership restrictions on the ability to propose bylaw amendments).
Shareholders’ right to initiate bylaw amendments is well established – just not in Maryland.
At many companies, shareholders can pursue corporate governance reform through either recommendations to the board or through binding bylaw amendments.
Because many REITs are incorporated in Maryland, their shareholders cannot initiate binding bylaw amendments unless this right is affirmatively established by the company’s governing documents.
In Delaware, where many hospitality C-corporations are incorporated, shareholders have this right by law (DGCL Sec. 109).
By our count, fifteen listed lodging companies currently permit shareholders to initiate bylaw amendments, including six lodging REITs (Table 1). None of these companies set a higher ownership threshold to propose binding rather than precatory proposals.
Table 1: Listed lodging companies currently allowing shareholders to initiate bylaw amendments
|Company||State of incorporation||Corporate structure||Increased ownership requirement|
|ESH REIT||DE||REIT (paired with C-corp)||No|
|Extended Stay||DE||C Corp||No|
Shareholders have shown broad support for the right to initiate bylaw amendments
Shareholders at four listed lodging REITs voted on a substantially identical proposal in 2015 (Table 2). The average vote was 69% in favor.
Table 2: Recent shareholder votes at listed lodging REIT: Shareholder right to initiate bylaw amendments
|Company||Votes cast in favor||Year voted|
Companies where a majority of shareholders voted in support of the proposal have now recommended shareholders approve charter amendments that would establish their right to initiate bylaw amendments.
With the support of many other shareholders, UNITE HERE has achieved clear gains in corporate governance at listed lodging REITs, both through the engagement process and through the ballot box (see http://www.hotelcorpgov.org for more details).
For further information, contact JJ Fueser at [email protected]