A Momentous Day for Investors
Submitted by: Ted Allen, Publications
July 1 was a momentous day at the U.S. Securities and Exchange Commission as the commissioners approved a long-awaited board election reform and proposed a series of wide-ranging disclosure rules.
By a 3-2 vote, the SEC gave final approval to a New York Stock Exchange rule change to bar brokers from casting uninstructed client shares in uncontested director elections starting in 2010.
The rule approval was praised by advocates for institutional investors, which have lobbied for a ban on “broker votes” for more than a decade. However, the SEC’s two Republican commissioners warned that the new rule could diminish the influence of retail shareholders, increase the number of directors who lose their seats each their year, and impose additional costs on issuers.
Also on July 1, the SEC unanimously voted to propose new rules that seek more information on compensation risks, other services performed by pay consultants, director qualifications, and board leadership structures. The disclosure proposals also include a new mandate that companies disclose proxy vote results in an 8-K filing within four business days of an annual meeting, instead of up to several months later in a quarterly filing. The commission also voted to issue draft rules that address the annual advisory vote on pay requirement that now applies to financial firms that receive support under the Troubled Asset Relief Program (TARP). Both rule proposals will be subject to a 60-day comment period, and SEC officials hope to have final rules in place before the 2010 proxy season.
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Wednesday, July 1, 2009 |
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The SEC Approves “Broker Voting” Rule Change
Submitted by: Ted Allen, Publications
By a 3-2 vote, the SEC today approved a long-anticipated New York Stock Exchange proposal to bar brokers from casting uninstructed client shares in uncontested director elections.
Also today, the SEC unanimously voted to propose new rules that seek more information on compensation risks, director qualifications, and board leadership structures. In a pleasant surprise for investor activists, the disclosure proposals also include a new mandate that companies disclose proxy vote results in an 8-K filing within four business days of an annual meeting, instead of several months later in a quarterly filing. The commission also voted to issue draft rules that codify the annual advisory vote on pay requirement that now applies to federally supported financial firms. Both rule proposals will be subject to a 60-day comment period.
The “broker vote” rule change, which takes affect on Jan. 1, 2010, will apply to all NYSE-listed issuers, except for registered investment companies. The rule change, which was backed by many institutional investors, may lead to a significant increase in the number of directors who fail to win majority support in the face of shareholder “vote no” campaigns.
Commissioners Troy Paredes and Kathleen Casey voted against the rule change. They warned that the amendment to NYSE Rule 452 could diminish the influence of retail investors while increasing the power of institutional shareholders. They also said that the SEC should have moved first to address other “proxy plumbing” issues, such as the shareholder communication rules and the problems of “empty” and “over voting.”
While noting the concerns raised by issuers and the commissioners who urged delay of the rule change, SEC chair Mary Schapiro recalled that the rule was first drafted three years ago by a NYSE proxy working group with a “widely diverse” membership. “Keeping hard decisions on hold for many years doesn’t solve any problems. It’s time to move forward,” Schapiro said.
Schapiro called on the SEC staff to start work on developing regulatory proposals to address other proxy voting issues. However, any such rules won’t be proposed and finalized in time for the 2010 proxy season. SEC staff members said the commission may hold a roundtable on these issues in October or November.
Schapiro also urged the agency staff to work with the NYSE and issuers on new efforts to educate investors about proxy voting in the absence of broker votes.
For more details on today’s agenda items, click here.
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Friday, June 26, 2009 |
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“Say on Pay” Wins Majority Support at Supervalu
Submitted by: Ted Allen, Publications
A shareholder proposal seeking an annual advisory vote on executive compensation won more than 50 percent support at Supervalu, a Minnesota-based grocery chain, according to news reports.
The vote at the company’s June 25 annual meeting is the 19th majority result for a “say on pay” proposal at a U.S. company this year, according to RiskMetrics Group data. Pay vote resolutions have averaged 46.7 percent support so far this season, up from 42 percent in 2008.
The proposal was filed by Denver-based shareholder activist Gerald Armstrong. Supervalu did not release detailed preliminary vote results, according to news reports.
Pay vote proponents say they hope that the greater support received by advisory vote resolutions this year will spur Congress to mandate pay votes at all U.S. companies.
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Thursday, June 25, 2009 |
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The SEC to Address Broker Votes and New Disclosure Rules
Submitted by: Ted Allen, Publications
The Securities and Exchange Commission plans to address the long-awaited New York Stock Exchange’s “broker vote” rule at an open meeting on July 1.
The NYSE has proposed to amend exchange Rule 452 to remove uncontested director elections from the list of routine matters where brokers can vote client shares if they don’t receive voting instructions within 10 days before an annual meeting. Most activist investors support the rule change and argue that these discretionary broker votes, which typically are cast for management nominees, can dampen the impact of “vote no” campaigns. For instance, labor investors contend that two Citigroup directors would not have received majority support at the company’s April 21 meeting without the help of broker votes.
According to the agenda for the SEC meeting, the commission also will discuss whether to propose new disclosure rules on corporate governance and compensation matters. SEC Chairman Mary Schapiro has called for companies to provide more disclosure on director qualifications and the firm’s reasons for selecting its board leadership structure.
The agenda also includes a discussion of proposed rules for advisory votes on compensation at federally supported financial institutions.
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Wednesday, June 17, 2009 |
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Obama Unveils Regulatory Reforms
Submitted by: Ted Allen, Publications
President Barack Obama today unveiled a series of proposals as part of a “sweeping overhaul” of the U.S. financial regulatory system.
While the administration did not go far as some market observers had expected, the president’s proposals would significantly expand the authority of the Securities and Exchange Commission and other regulators.
The proposals, many of which require Congressional approval, include giving the Federal Reserve more authority to oversee bank holding companies and non-bank firms, the creation of a new Financial Services Oversight Council to identify emerging systemic risks, and the establishment of a new Consumer Financial Protection Agency to regulate mortgages and other financial products.
To reduce risks to the financial system, “large, interconnected” financial firms identified as “Tier 1 financial holding companies” would be subject “to more stringent capital, activities, and liquidity standards, and more exacting prudential supervision,” according to a White House summary of the proposals.
The president also called for requiring hedge fund advisers to register with the SEC and for “comprehensive regulation” of all over-the-counter derivatives, including credit default swaps. Originators of securitized products would be required to retain a 5 percent stake.
The White House also said the SEC should “continue its efforts to tighten the regulation of credit rating agencies” and “ensure that firms have robust policies and procedures that manage and disclose conflicts of interest.”
The administration did not propose to combine the SEC and the Commodity Futures Trading Commission (CFTC), as some agency officials had endorsed. However, the administration did direct the two agencies to prepare a report by Sept. 30 with their recommendations to Congress on harmonizing their regulation of similar financial instruments.
Recalling the role that short-term incentives and other compensation practices played in causing the global financial crisis, the White House highlighted several principles and reforms that were announced by the Treasury Department on June 10. “Executive compensation--unmoored from long-term performance or even reality--rewarded recklessness rather than responsibility,” the president said in his speech today.
“Federal regulators should issue standards and guidelines to better align executive compensation practices of financial firms with long-term shareholder value and to prevent compensation practices from providing incentives that could threaten the safety and soundness of supervised institutions,” the White House said in its regulatory reform report.
The administration reiterated its support for “say on pay” legislation to require public companies to offer an annual non-binding vote on the compensation for senior executives. “While such votes are non-binding, they provide a strong message to management and boards and serve to support a culture of performance, transparency, and accountability in executive compensation,” the White House noted.
The Obama administration again said it would support legislation to enhance the independence and authority of compensation committees.
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RiskMetrics Group Launches Annual Global Policy Formulation Process
Submitted by: Sarah Cohn, Corporate Communications
RiskMetrics Group today kicked off its annual global policy formulation process by inviting its institutional investor clients along with a broad range of industry constituents to participate in its 2010 proxy voting policy survey. This year’s policy formulation process will include more outreach to investment industry groups as well as expanded outreach to the global corporate issuer community.
RiskMetrics undertakes an extensive policy formulation process each year that includes a broad-based global survey, issue and market-specific roundtables and an open comment period. During the process, clients and various industry constituents are encouraged to offer their views on leading governance issues likely to dominate the upcoming proxy season. RiskMetrics then formulates its proxy voting policies to reflect the collective thinking of its institutional investor clients, enriched by its own knowledge and expertise.
The survey period is open through July 31 and will be followed in October by an open comment period after RiskMetrics publishes its draft policies. The open comment period is designed to elicit objective, specific feedback from investors, corporate issuers and industry constituents on the practical implementation of proposed policies. Feedback received during the open comment period will be made available via RiskMetrics’ online Policy Gateway.
To learn more about RiskMetrics Group’s policy formulation process, please visit here..
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Monday, June 15, 2009 |
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Michigan Congressman Introduces Governance Bill
Submitted by: Ted Allen, Publications
On June 12, U.S. Rep. Gary Peters of Michigan introduced a far-ranging governance bill that also addresses “broker” votes, disclosure of performance targets, and compensation consultants.
Other provisions of Peters’ bill, “The Shareholder Empowerment Act of 2009,” are similar to those in legislation introduced in late May by a fellow Democrat, Senator Charles Schumer of New York. Both Peters and Schumer call for U.S. public companies to hold annual advisory votes on executive pay, allow shareholders to nominate board candidates to appear on management proxy statements, adopt a majority vote standard in uncontested director elections, and appoint an independent chairman.
“As an investment advisor for over 20 years, shareholder rights issues have always been very important to me,” Peters said in a press release. “This bill empowers shareholders, a company’s true owners. Wall Street executives who pursued reckless investment strategies were a major contributing factor to the recent financial meltdown. Ensuring that executives act in investors’ long-term interest rather than for their own short-term gain is critical to prevent a similar economic collapse in the future.”
Peters’ bill, H.R. 2861, goes farther than Schumer’s by calling for the elimination of uninstructed “broker” votes in board elections. The SEC is considering a New York Stock Exchange rule change on this topic, but it’s not known when the commission will act.
In addition, Peters’ bill would prohibit advisors to compensation committees from also performing work for management. This would be a significant change. Companies now must disclose whether their compensation panel uses a consultant, but issuers do not have to provide details on the fees paid to the advisor or the fees earned for doing other more-lucrative work for management, such as human resources consulting.
Seeking to “curb excessive risk-taking,” Peters’ legislation also would require companies to inform shareholders about the performance targets used to determine bonuses and other incentives. While some U.S. companies are providing better disclosure of performance targets, others have resisted, citing competitive reasons.
His bill also would require companies to adopt “claw-back” policies and prohibit severance payments to executives who are terminated for “poor” performance.
It’s unclear whether his bill has a realistic chance of passage. Peters is serving in his first-term in the House of Representatives, where legislative agendas are controlled by senior Democrats. So far, six other representatives--including two veteran Democratic lawmakers, Reps. John Dingell of Michigan and Maxine Waters of California--have signed up as co-sponsors.
Peters’ district includes parts of suburban Detroit and is home to Chrysler’s headquarters and three General Motors plants. He is a member of the House Financial Services Committee, which oversees the SEC and investor issues. Before joining Congress in January, he served as a state lawmaker, Michigan’s lottery commissioner, and a city councilman.
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Friday, June 12, 2009 |
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Labor Investors Protest Pulte’s Refusal to Accept Resignations
Submitted by: Ted Allen, Publications
The CtW Investment Group has called on the board at Pulte Homes to reverse its decision to seat three directors--Debra J. Kelly-Ennis, Bernard W. Reznicek, and Richard G. Wolford--who received majority opposition.
“By failing to accept the resignations tendered by these directors, each of whom failed to receive a majority of votes cast in the company’s May 14 director election, the board violated the most fundamental corporate governance principle and reinforced investor concerns with the board at a sensitive moment,” William Patterson, executive director of CtW, wrote in a June 9 letter to David McCammon, Pulte’s lead independent director.
CtW, the investment arm of the Change to Win labor federation, said the vote was, “an extraordinary rebuke” given the company’s high inside ownership. (Executives and directors owned a 19.5 percent stake as of March 17.) The labor investment group estimates (based on past turnout and without counting uninstructed “broker” votes) that at least 76 percent of outside investors voted against the three directors. The Laborers’ International Union of North America, in a June 2 letter, also has called on Pulte’s board to reconsider its decision.
In a June 2 filing, the Michigan-based homebuilder said the governance committee considered the issue at a May 29 meeting and that the full board (with the three directors recusing themselves) voted unanimously not to accept the resignations. Pulte, which has a resignation policy in its governance guidelines, maintains a plurality voting standard. The board concluded that the resignations were a reflection of the company’s classified board structure and its adoption of a “poison pill” plan in March. Shareholders gave majority support to declassification proposals this year, in 2008, and in 2007.
The board said it recommended allowing shareholders to vote in 2010 on the pill as well as a charter amendment to start phasing out its classified board in 2011. The board delayed a final decision on these governance matters until it completes a merger with Centex.
CtW said it was not satisfied by the board’s recent actions. “Rather than address shareholders’ objection to weak and unresponsive directors, the board is belatedly taking up specific governance failures that are themselves symptoms of an entrenched board,” Patterson wrote in his letter.
It’s extremely rare for a director at an S&P 500 firm like Pulte to receive majority opposition in an uncontested board election. That happened at two S&P 500 companies (Cameron International and Boston Properties) in 2008, according to RiskMetrics Group data.
So far this year, directors at four smaller companies--Zoll Medical, NBTY, Digi International, and Plexus--have encountered majority opposition, according to RiskMetrics data. It is likely that directors at other smaller issuers also failed to receive majority support this season, but that information won’t be public until August when many companies with second-quarter meeting dates file their 10-Q reports with final vote results. Most Russell 3,000 companies don’t have director resignation policies or majority vote bylaws, so they are not likely to disclose a majority withhold vote until their 10-Q filing.
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Wednesday, June 10, 2009 |
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Treasury Calls for Annual Advisory Votes and Empowering Pay Panels
Submitted by: Ted Allen, Publications
The Obama administration said today it would support legislation to require an annual advisory vote on executive compensation at all U.S. public companies. The administration also called for a bill to boost the independence of compensation committees.
“Companies should seek to pay top executives in ways that are tightly aligned with the long-term value and soundness of the firm,” Treasury Secretary Timothy Geithner said in a statement.
According to the Treasury Department’s summary of the proposed “say on pay” bill, shareholders would have the right to vote on the annual compensation for a company’s top five named executive officers. That vote would be based on the pay described in the “Compensation Disclosure & Analysis” section of the company’s proxy statement, including “salary, bonus, stock awards, option awards, non-equity incentive plan compensation, change in pension value and non-qualified deferred compensation earnings, all other compensation, and total compensation amount,” according to the department. Companies also would be required to submit “golden parachute” arrangements to a separate shareholder vote when seeking approval for mergers, acquisitions, or other change in-control transactions.
In an apparent recognition of the different approaches that U.S. issuers have taken in holding advisory votes so far, the Treasury Department said companies “will have the opportunity to ask shareholders’ views on specific compensation decisions, including decisions related to various aspects or categories of pay.” The Treasury Department’s summary does not indicate when the advisory vote mandate would first take effect.
After meeting today with Securities and Exchange Commission Chair Mary Schapiro and Federal Reserve Governor Daniel Tarullo, Geithner emphasized that the administration would not seek to impose caps on compensation. While Obama’s support for advisory votes is not new, today marked the first time that the Treasury Department has formally called for imposing advisory votes on all U.S. public companies.
In another new development, Geither also called for legislation to give the SEC “the power to ensure that compensation committees are more independent, adhering to standards similar to those in place for audit committees as part of the Sarbanes-Oxley Act.” He also said that pay panels “would be given the responsibility and the resources to hire their own independent compensation consultants and outside counsel.” The bill, according to a Treasury summary, also would direct the SEC to establish standards “for ensuring the independence of compensation consultants and outside counsel used by the compensation committee.”
The prospects for the pay-vote legislation would appear to be good; the main question is whether such a bill could be passed by both chambers of Congress and implemented by the SEC in time to mandate pay votes during the 2010 proxy season.
The House of Representatives passed similar advisory vote legislation in 2007, but a companion Senate bill, which was introduced by then-Senator Obama, stalled. Since last September, the Senate has shown more interest in pay-reform legislation. In February, Senator Christopher Dodd, who chairs the Senate Banking Committee, inserted into the economic stimulus bill an advisory vote mandate for the several hundred financial firms that received federal bailout funds.
In addition to the financial firms, 23 companies have voluntarily agreed to hold annual pay votes, according to RiskMetrics Group data. Most of the firms took that step in response to majority-supported shareholder proposals.
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RiskMetrics Group to Hold Governance Exchange Webcast: 2009 Proxy Season Trends and a Look Ahead
Submitted by: Sarah Cohn, Communications
RiskMetrics Group will hold a special two-part Governance Exchange webcast, 2009 Proxy Season Trends and a Look Ahead, on Tuesday, June 16 at 1 p.m. EDT. During the first half hour, members of RiskMetrics’ research team will provide an overview of the 2009 proxy season, focusing on trends in support for shareholder proposals, changes to the compensation landscape and steps taken by U.S. corporations to address investor concerns in the wake of the financial crisis.
Part II will feature a 45-minute roundtable discussion with leading governance experts on key developments likely to shape the governance landscape over the coming months. As part of this “blue-sky” discussion, speakers will address questions such as:
* What are the prospects of the Securities and Exchange Commission creating a single, universal ballot for corporate elections?
* Are we headed in the direction of federal preemption of state corporation law?
* Have director elections eclipsed shareholder proposals as the primary vehicle for shareholder activism?
* How might the loss of broker non-votes impact the 2010 proxy season?
Speakers Part One: 1:00 PM - 1:30 PM EDT, 2009 Proxy Season Trends
* Pat McGurn, Special Counsel, RiskMetrics Group
* Subodh Mishra, Governance Institute, RiskMetrics Group
* Valerie Ho, Compensation Research, RiskMetrics Group
Speakers Part Two: 1:30 PM to 2:15 PM EDT, Looking Ahead
* Richard H. Koppes, Of Counsel, Jones Day
* Broc Romanek, Editor, TheCorporateCounsel.net
* Ed Durkin, Corporate Affairs Director, United Brotherhood of Carpenters and Joiners of America
To register for the webcast, please visit here. To learn more about Governance Exchange, please visit here.
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