The SEC Denies Proxy Access
Submitted by: L. Reed Walton, Publications
U.S. companies will be allowed once again to exclude proxy access proposals from their corporate ballots, the Securities and Exchange Commission has decided.
The access-blocking rule, pushed through by the commission’s Republican majority, was denounced by Commissioner Annette Nazareth, labor investors, state pension funds, and Democratic lawmakers.
“In a partisan 3-1 vote, the SEC today attacked the rights of investors to nominate corporate directors,” the AFL-CIO labor federation said in a statement after the commission’s Nov. 28 open meeting.
The SEC’s vote effectively overturns a federal court decision that opened the door for investors to get proxy access on the ballot at three companies in 2007. The commission’s action sets the stage for more litigation on the issue, as shareholders this week filed access proposals at financial firms Bear Stearns and JP Morgan Chase, and vowed to return to court if the companies seek to omit those resolutions.
The vote by the shorthanded SEC is a victory for General Motors, Bank of America, and other issuers that urged the commission to bar proposals to allow investors to nominate board candidates to appear on corporate proxy statements. Former SEC Chairman Arthur Levitt (who also is a RiskMetrics Group board member) told Bloomberg News that the SEC’s action is “probably the most important vote the commission has taken in nearly 15 years.”
The law firm of Watchtell, Lipton, Rosen & Katz, which represents companies and directors, applauded the SEC’s decision. The New York-based firm noted that existing proxy contest mechanisms “are more than sufficient,” given the potential “negative effects and risks” of contested elections. “Moreover, shareholders have never had as many other, less disruptive, avenues through which to express their views as they have today,” the law firm said in a memo.
SEC Chairman Christopher Cox voted with Commissioners Kathleen Casey and Paul Atkins to reassert the agency’s past position that companies may exclude proxy access resolutions. Nazareth, the SEC’s only Democratic member after Commissioner Roel Campos departed in September, voted against the measure.
Cox said he voted to bar access because it was the only one of two draft rules released by the SEC that could muster a three-vote majority. In July, Cox joined Nazareth and Campos in supporting an alternative proposal that would have imposed a 5 percent ownership threshold and greater disclosure requirements on shareholders seeking to file access bylaw resolutions.
Cox said he hoped the SEC would revisit the issue in 2008 and work on crafting a rule to permit some access proposals. “Today is not the end, and I hope all stakeholders will continue to work with us,” he said. “If we use the time between now and the next proxy season wisely, we can act on a new rule proposal next year that does more than just perpetuate the status quo.”
At least one Republican commissioner appears unlikely to support a federal access rule in the future. Casey said governance reforms should be handled at the state level rather than nationally.
The SEC has repeatedly failed to reach a consensus on proxy access in the past. Nazareth expressed skepticism that the SEC would approve a pro-access rule next year. She said it appears the Republican commissioners voted for the non-access rule simply to put the matter behind them.
"I don’t see a principled way to vote on the non-access release and be supportive of shareholder rights in the longer term,” Nazareth said. “Indeed, if this amendment were truly intended to be a temporary stop-gap measure … it would then have a sunset provision. But it does not.”
“Shareholder rights face a long uphill battle with this commission,” Nazareth said. “I hope that we have not completely lost the opportunity to address these issues.”
Ann Yerger, executive director of the Council of Institutional Investors, said the SEC vote is a step in the wrong direction. “It makes no sense for the commission to do the wrong thing now but promise to try to do the right thing next year,” Yerger said in a press release. “This is a sad day for shareowners.”
“Ignoring the Pleas of Investors”
Nazareth, who has announced her intention to step down from the commission, criticized the process used to arrive at the decision to block access. “The vast majority of [those submitting public comment] on the non-access proposal opposed it, yet the commission is ignoring the pleas of investors and proceeding down this path,” she said at the meeting.
Nazareth said the Republicans’ move to support the non-access rule was an “11th hour” decision that was only made “after it was clear that an access proposal would fail to pass with a shorthanded commission.”
During the meeting, Cox emphasized the importance of preserving the agency’s “status quo” of the last 17 years--the right of companies to exclude proxy access proposals--while the commission debates a possible broadening of access rights next year.
However, Tracey Rembert, senior governance analyst for the Service Employees International Union’s (SEIU) capital stewardship program, noted that “the status quo was there were proxy access proposals all this year.”
In September 2006, the U.S. Court of Appeals for the Second Circuit ruled that the SEC staff had improperly allowed American International Group (AIG) to exclude a proxy access proposal by the American Federation of State, County, and Municipal Employees (AFSCME). The Second Circuit faulted the agency for its inconsistent interpretations of Rule 14a-8(i)(8), which permits the exclusion of shareholder proposals that “relate to an election of directors.”
After that ruling, the SEC expressed “no view” on a request by Hewlett-Packard to omit an access proposal. As a result, proxy access resolutions went to a vote at HP and two other firms this year.
AFSCME and several state pension funds, including the nation’s largest, the California Public Employees’ Retirement System (CalPERS), sent letters to the SEC in mid-November urging Cox to let the AFSCME v. AIG decision stand for 2008.
“I fully understand why these requests are being made, because many believe that codifying [the right of companies to exclude proposals] would take the wind out of efforts to improve the way the proxy process works for investors,” Cox said.
Commissioners Casey and Atkins reiterated Cox’s argument that the absence of a hard-and-fast rule on access would cause legal uncertainty, because the Second Circuit’s decision would not apply nationwide if another federal appeals court ruled differently.
CalPERS CEO Fred Buenrostro disagreed. “[P]roxy access has created no uncertainty in the market this year,” he said in a press release. “There have been no related legal challenges because of this illusory uncertainty. Instead of acting responsibly on this issue with a full commission, the SEC has adopted a flawed measure that is contrary to the very purpose for which it was established.”
Potential Legal Challenge
While Cox said the SEC acted to prevent legal uncertainty, several investors already are preparing for a potential court fight over the commission’s decision. On Nov. 28, AFSCME filed access bylaw resolutions at JP Morgan Chase and Bear Stearns. The companies’ shares have fallen because of subprime lending losses, and AFSCME wants shareholder input on board nominees to address concerns about possible mismanagement by top executives.
North Carolina's state treasurer joined in filing both proposals and New Jersey's Division of Investments co-filed the Bear Stearns proposal.
“We’ll be urging those companies not to omit proxy access from their ballot,” Richard Ferlauto, director of pension and benefit policy for AFSCME, said in a statement. “But if they seek relief from the SEC, we are prepared to go to court to preserve the [AFSCME v. AIG] decision.”
Ferlauto added that AFSCME chose the two companies because they are incorporated in New York, one of the three states overseen by the Second Circuit. The likelihood of a ruling opening the door to proxy access once again is greater in a court that already ruled that the SEC misinterpreted its own rules, Ferlauto said.
Lawmakers Express Disappointment
Two prominent Democratic lawmakers--House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd--expressed disappointment and said the SEC should have deferred action until it had a full set of five commissioners.
In a statement, Frank said the SEC’s action “will leave shareholders with inadequate recourse to influence insular boards that are unresponsive to shareholder concerns, by effectively precluding shareholders from proposing changes to director election procedures.”
Dodd said he may introduce legislation to reverse the SEC’s action. “I don't think it's fair,” the Connecticut senator told the Reuters news service.
Ferlauto said the SEC’s decision to bar access for the 2008 season amounts to a black mark on Cox’s legacy, branding him as an anti-shareholder chairman.
A reputation of unfriendliness to shareholders could eventually drive investors away from U.S. markets, Nazareth warned. Earlier this week, The Wall Street Journal reported that CalPERS and other large U.S. state pension funds are shifting more of their investments to foreign markets.
Investors have the right to nominate or remove directors in virtually all other developed countries. Several pension funds in the United Kingdom and Australia, as well as the London-based International Corporate Governance Network, urged the SEC not to take away the right of investors to file access bylaw proposals.
“European investors are clearly not pleased” by the commission’s decision, said Rembert of the SEIU.
In an editorial before the SEC vote, the Financial Times was skeptical of the argument by U.S. corporate advocates that proxy access might drive some companies to move overseas. “There’s a flip side to the competitiveness argument--international investors, too, can go anywhere,” the London-based newspaper wrote. “Why would they choose a country where they have fewer rights?”
Ted Allen contributed to this article.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
November 28, 2007 |
 |
RiskMetrics Group Responds to SEC's Proxy Access Decision This Morning
Submitted by: Patrick McGurn, Special Counsel
The SEC’s decision to reverse its course on proxy access leaves investors’ efforts to enhance boardroom accountability in limbo. Thousands of investors expressed their support for access via the SEC’s comment process and our own 2007 Policy Survey revealed that two-thirds of institutional investor respondents support proxy access at all U.S. companies. Three access proposals came to a vote in 2007, with one being approved, demonstrating these resolutions can move forward without negative impact. We hope well-reasoned and practical rulemaking on the proxy access issue will prevail given the importance of directors' accountability to shareholders.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
November 26, 2007 |
|
Investors and Boards – Encouraging or Restraining ESG?
Submitted by: Stephen Deane, Governance Institute
Who is advancing ESG onto corporate agendas, and who is putting on the brakes – CEOs, boards or investors?
If you believe that investors are demanding that companies take action on environmental, social and governance issues (ESG), while corporate executives are resisting it, you may be surprised by the findings of a McKinsey & Co. survey of CEOs at companies participating in the UN Global Compact. McKinsey describes its findings in Shaping the New Rules of Competition: UN Global Compact Participant Mirror as well as in an October article in McKinsey Quarterly online titled “CEOs on strategy and social issues.”
“Chief executives around the world increasingly believe that they have a strategic rationale for taking on environmental, social, and governance issues,” according to the MQ article. (That’s not surprising, given that these execs lead companies that have already signed on to the UN Global Compact. ) CEOs feel pressure from increasing societal expectations – especially from employees and consumers.
But where do investors and corporate boards fit in this picture?
Turns out, investor short-termism ranks as a big-time barrier. Companies need a long-term horizon to invest in ESG, but shareholders demand short-term financial performance. And that leads to competing strategic priorities, which the CEOs ranked as the top barrier. CEOs on Strategy explains:
Shareholder demands for strong short-term performance, for example, compete with environmental, social, and governance investments that are longer term by nature. The absence of clear and consistent metrics that could relate such investments to (or correlate them with) investor returns exacerbates this conflict. In fact, fewer than one-fifth of the CEOs we surveyed believe that financial markets account for the way a company approaches environmental, social, and governance issues when they value it.
The survey also revealed gaps between what CEOs thought companies should do and what they actually do. Two gaps jumped out at me:
• 69% of surveyed CEOs believe that companies should “have the board, as part of its risk-management and fiduciary responsibilities, discuss and act on these issues.” But only 45% say that boards actually do this.
• 51% of the CEOs believe that companies should “embed these issues into investor relations strategy by incorporating them into discussions with mainstream financial analysts.” But only 31% say that companies do so.
Nonetheless, McKinsey sees promise in investment initiatives underway to encourage ESG activity. These include investment firms that support the UN Principles for Responsible Investing, pension funds that base investments on those principles, and Goldman Sachs’ Global ESG Framework. Still, McKinsey observes:
These initiatives still have to gain further traction – sustainability reports rarely highlight the most financially relevant issues, and investment initiatives and frameworks have yet to become part of the capital market mainstream – but current activity is promising.
What do you think? What are your views on these three questions:
* By demanding short-term returns, are investors part of the problem? Or, by pressing companies to fulfill ESG responsibilities, are investors part of the solution?
*And what about boards? Are they doing their job to discuss and act on ESG as part of their oversight role? Are they a positive influence or a constraint on company actions on ESG?
* Last but not least, what can all parties do to enhance the role of both investors and boards in encouraging companies to address ESG issues?
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
November 21, 2007 |
|
Investors Seek Delay on Access Vote
Submitted by: L. Reed Walton, Publications
Investor representatives from Sacramento to London joined forces this week to urge the U.S. Securities and Exchange Commission not to roll back investors’ proxy access rights.
The California Public Employees’ Retirement System (CalPERS), the California State Teachers’ Retirement System (CalSTRS), the Connecticut Retirement Plans and Trust Funds, the Colorado Public Employees’ Retirement Association, the Washington State Investment Board, five New York City pension funds, the Council of Institutional Investors (CII), and the United Kingdom-based Universities Superannuation Scheme and Hermes Equity Ownership Services all criticized SEC Chairman Christopher Cox’s plan to move forward with a vote on proxy access this year.
The SEC plans to consider the issue, along with rule changes to promote electronic shareholder forums, during its next open meeting on Nov. 28.
The investors held a Nov. 19 telephonic press conference as part of a final campaign to head off an expected SEC vote to prohibit access proposals. Cox has warned that the lack of a clear rule on proxy access--or the right of investors to nominate candidates to appear on management proxy statements--would cause legal uncertainty and possible fraud during the 2008 proxy season.
“The argument that there is uncertainty in the market is not borne out by the messages of these institutional investors,” said Jack Ehnes, CEO of CalSTRS. “We must not run backward out of fear of an illusionary uncertainty,” said Ehnes, who also serves as board chairman for CII, which represents investors with more than $3 trillion in assets.
The SEC took “no view” on corporate requests to exclude access proposals this year after a U.S. appeals court ruled that the agency improperly allowed American International Group (AIG) to omit an access proposal by the American Federation of State, County, and Municipal Employees (AFSCME). Three proxy access proposals went to a vote in 2007, including a resolution that received 53.4 percent support at Cryo-Cell International in July.
A hedge fund also filed an access proposal at Reliant Energy, but the Texas-based company sought a court ruling that it was not bound by the AFSCME v. AIG decision. That proposal was withdrawn before the dispute was decided. At a Nov. 14 hearing, Cox told lawmakers that this case is an example of the legal ambiguity plaguing the market after the AFSCME decision.
At the press conference, the investor representatives rejected this argument. “Often critics do not like the unknown or a sense of uncertainty,” said Fred Buenrostro Jr., CEO of CalPERS, which hosted the press conference. “What has happened over this year has been practical for investors, and that fear [of uncertainty] is unfounded.”
“[O]nce the rights of shareholders are advanced, shareholders will quickly learn how to exercise them prudently and responsibly, which is the case in other jurisdictions,” said Bess Joffe, a manager at London-based Hermes.
Shareholders in the U.K., Australia, and South Africa, are allowed by law to nominate directors to a management slate, provided they meet ownership thresholds, Joffe noted.
The SEC issued two competing rule proposals on proxy access in July. One draft rule would essentially bar access by allowing companies to resume excluding such resolutions. The second draft rule would impose new disclosure requirements and a 5 percent ownership threshold for filing access bylaw proposals.
Both were met with significant investor backlash; most of the comment letters from investors urged commissioners to scrap both proposed rules and let shareholders file access resolutions again in 2008. Cox has said repeatedly that he plans to have a firm rule on proxy access in place by December--either one of the two draft rules or a not-yet-disclosed third option. Cox has promised that the SEC will revisit the issue in early 2008.
“A Step Backwards”Most investors believe the SEC will elect to block proxy access until a new formal rule can be crafted, Meredith Miller, assistant treasurer for policy at the Connecticut funds, said at the press conference.
If the SEC elects to bar access while it debates a new rule on the issue, Buenrostro warned, “what you’re left with is a step backwards that becomes the law.”
Cox has said he is unsure what the SEC will vote to do. His vow to move ahead with a some kind of interim rule on access after the departure of one of the SEC’s Democratic commissioners, Roel Campos--with the other Democrat, Annette Nazareth, poised to leave--has compounded shareholder frustration and increased calls to let the AFSCME decision stand for 2008.
Federal law requires that two of the five commission seats be filled by members of the party not currently occupying the White House, and there will be an all-Republican commission when Nazareth departs. Senate Democrats have reportedly proposed two commissioner candidates, but they must be formally nominated by President George W. Bush and then confirmed by the Senate, a process that may take several months.
During the news conference, the investors argued that a full five-member commission would treat the issue of proxy access more thoroughly and would be more likely to reach a consensus on the issue.
“Given the political slant of the current commission, any decision [wouldn’t] actually have much credibility in the public markets,” said Joffe of Hermes.
None of the participants in the news conference would comment on whether they would file a lawsuit or push for legislation if the SEC bars proxy access proposals during the 2008 season. “The SEC has once again missed an opportunity to demonstrate to investors that it is committed to developing a more comprehensive system of shareholder rights,” said Dr. Daniel Summerfield, an advisor to the Universities Superannuation Scheme, an institutional fund based in Liverpool, England.
Last week, Richard Ferlauto, director of pension benefit policy at AFSCME, told Risk & Governance Weekly that the union pension fund is prepared to go to court again to fight for proxy access. “We want to see proxy access exist in this market, and we will do what it takes” either with litigation or pushing for a proxy access law in Congress, he said.
Speaking last week at an investor conference in Florida, Ferlauto warned that the adoption of the non-access draft rule would open the door to the omission of other shareholder proposals related to director elections, such as those asking companies to establish majority vote election standards.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
November 20, 2007 |
|
RiskMetrics Group Releases 2008 Corporate Governance Policies
Submitted by: Sarah Cohn, Marketing and Communications
RiskMetrics Group today announced its ISS Governance Services unit has released its 2008 U.S., Canadian, U.K. and International proxy voting policies updates, which will be applied to all companies with shareholder meeting dates on or after February 1, 2008. ISS Governance Services’ global research team conducted extensive policy outreach activities worldwide throughout the year to collect feedback from clients, a variety of industry constituencies and key markets.
This year's policy updates reflect an increasing desire among investors for better disclosure on critical corporate governance issues. Our policy updates on shareholder resolutions calling for an independent chair, say on pay, stock option overhang cost, pay practices, accounting practices and product safety each derive from this trend towards improved transparency.
These updates, as well as more detailed information on our policy formulation process and this year's policy outreach efforts, are all available on our Policy Gateway. The Policy Gateway contains helpful FAQs, summaries of its surveys, roundtables and comment period and other informational materials to help investors and companies better understand how it views corporate governance matters. The full 2008 Proxy Voting Manual will be available in January 2008. RiskMetrics Group will also hold a 2008 Policy Webcast for clients on December 5 at 11:30 EST. To register, please visit: 2008 Corporate Governance Policy Updates Forum.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
November 19, 2007 |
|
Investor Votes Lead to Change
Submitted by: L. Reed Walton, Publications
Investors are watching to see how companies respond to more than 100 shareholder resolutions that received majority support in 2007 – and companies that fail to respond will likely face the same proposals in 2008.
Proponents, including the American Federation of State, County, and Municipal Employees (AFSCME), the New York City Employees’ Retirement System (NYCERS), and others, are lobbying companies to respond to majority-supported proposals. The investors say they plan to refile at many issuers if the boards do not take action.
“When there is a majority, we’ll try to talk to [the companies] and say, ‘The shareholders have spoken. What are you going to do about it?’” Cornish Hitchcock, an attorney for the Amalgamated Bank’s LongView Funds, told Risk & Governance Weekly (RGW).
If a company doesn’t act on a majority-supported proposal, LongView’s policy usually dictates that a binding proposal on the same issue be filed the next year, Hitchcock said. This year, LongView filed board declassification proposals that won majority support at food processing company Arkansas’ Best and online music service Napster. So far, the labor-affiliated fund has refiled a non-binding proposal on the same topic at Arkansas’ Best.
While the vast majority of shareholder proposals are non-binding, it’s getting more difficult for companies to disregard those that receive majority support, Hitchcock observed. As late as 2001, it often took a major corporate scandal to motivate companies to adopt shareholder-supported governance reforms--even after four to six years of repeat proposals, he said.
But the trend began to change in the aftermath of Enron and other corporate scandals. More than 40 companies have adopted reforms in response to shareholder proposals that received majority support in 2007, according to RiskMetrics Group data. Notably, on Nov. 1, Verizon Communications agreed to hold an annual advisory vote on executive pay after a 50.2 percent vote for a shareholder proposal and pressure from LongView, AFSCME, Walden Asset Management, the North Carolina and Connecticut state pension funds, and the city pension fund of Cincinnati, Ohio.
Earlier this year, Disney adopted a poison pill-limiting bylaw that was based on a majority-supported resolution submitted by Harvard Law School Professor Lucian Bebchuk. CSX instituted a majority vote standard for director elections after a proposal received majority support in May.
Another factor that may be driving more companies to heed shareholder proposals is concern that investors will withhold their votes from unresponsive boards in the future. Directors at 13 S&P 500 companies received more than 10 percent opposition in 2007 after failing to implement majority-backed shareholder proposals. (Under its benchmark policy, ISS Governance Services advises clients to vote against directors who fail to respond to proposals that receive more than 50 percent support from votes cast for two consecutive years.)
114 Majority-Supported Proposals
So far this year, 112 governance and two social proposals received more than 50 percent of votes cast, despite management opposition, according to regulatory documents filed through Oct. 31. The number of majority-supported proposals is about the same as 2006, when 116 proposals received majority support. In 2005, only 85 shareholder proposals won more than 50 percent support, according to RiskMetrics Group data.
CSX and Allegheny Energy each had three shareholder resolutions win majority support. Another 13 companies had two proposals--ranging from requests for performance-vesting stock options to an advisory vote on executive pay--receive over 50 percent support.
Proposals asking companies to declassify their boards were by far the best supported, with 29 winning 50 percent or more of the shares voted. Some of the best results this year for board declassification proposals were at Axcelis Technologies (91.4 percent) and O’Charley’s (90.4 percent). Both resolutions were submitted by NYCERS and opposed by management.
A similar proposal by the Service Employees International Union (SEIU) received 90 percent backing at shopping mall operator Macerich. The company so far has not responded, according to Tracey Rembert, senior corporate governance analyst for the labor union’s capital stewardship program. The SEIU filed three other declassification proposals that won majority support--at Taubman Centers and General Growth Properties, as well as an 84.3 percent vote at Sunrise Senior Living--according to the union. None of the companies have acted on the resolutions, Rembert said.
The AFL-CIO’s board declassification proposal received 80 percent support at Peabody Energy. The labor federation, which filed declassification resolutions that received over 70 percent backing at the company in 2005 and 2006, plans to refile the proposal for the fourth year in a row, as it has yet to receive a response from the company, said federation researcher Chris Huang.
Majority Voting and Simple Majority Vote Standards
Eighteen shareholder proposals asking companies to eliminate supermajority vote requirements for bylaw changes and other matters got 50 percent or higher support. Proposals requesting that boards institute a majority vote standard in director elections also did well, with 17 resolutions receiving majority support.
Individual shareholders filed most of the proposals requesting elimination of supermajority vote rules. Activist John Chevedden and his network of individual investors filed 15 of the 18 that won majority support this year. Proposals submitted by members of the Rossi family received 81.4 percent support at Kimberly-Clark and 80.1 percent at Zimmer Holdings.
If companies don’t act on their majority-supported resolutions, Chevedden and his allies plan to refile their proposals in 2008, rather than try to lobby those firms to act. “My past experience is that it’s a waste of time,” Chevedden told RGW. “Union pension funds are in a more powerful position, I guess.”
The California Public Employees’ Retirement System (CalPERS), which filed two simple majority proposals that received majority backing, lauds the results, though Senior Portfolio Manager Dennis Johnson said the fund does not “keep a scorecard on company responses.” CalPERS will continue to press the issue at non-responding companies in 2008, fund spokesperson Clark McKinley said.
The 17 majority vote election proposals that received over 50 percent support this year were down from 35 in 2006, largely because fewer of those proposals went to a vote this year. Proponents withdrew more than half of the 140 majority-vote proposals filed for the 2007 season following constructive discussion with the targeted companies.
The highest support for majority voting came at International Paper, where a proposal filed by the International Brotherhood of Teamsters won 85.5 percent of votes cast. International Paper and CSX, which also had a majority-supported Teamsters resolution, have since adopted majority vote bylaws, said Louis Malizia, director of the union's capital strategies department.
A third Teamsters majority-vote proposal won more than 50 percent support at Allied Waste. Malizia says that the union intends to refile that proposal at the company, which has not responded to calls for the measure’s adoption. The union will also refile other resolutions at two companies that would have seen significant support if not for large insider stock ownership. The Teamsters’ one-vote-per-share proposal at FedEx, as well as a proposal on limiting severance pay at Coca-Cola Enterprises, will be submitted again in 2008, Malizia said.
Thirteen resolutions calling for the right of holders of at least 10 to 25 percent of outstanding stock to call a special meeting won majority support this year, mostly sponsored by individual shareholders. Chevedden, who submitted one of the majority-supported resolutions at American Airlines’ parent company AMR, said that many firms have responded by approving special-meeting provisions.
He expressed concern, however, about companies adopting provisions that allow management to reject investor calls for a special meeting--if the board determines that the issue shareholders wish to discuss was already addressed at an annual meeting within 12 months of the proposed special meeting date, or if an annual or special meeting has already been scheduled. Bank of America is one company that has adopted a special meeting provision with such an exception.
Executive Pay Proposals
Though board reform proposals received most of the majority votes this season, executive pay resolutions also fared well. Resolutions pushing for an annual non-binding vote on pay, or “say on pay,” received majority support at eight companies and have been the subject of aggressive lobbying by institutional investors this year.
AFSCME, Walden Asset Management, and public pension funds sent letters to companies like Verizon and Ingersoll-Rand, where “say on pay” proposals received majority support from investors. In addition, NYCERS sent a letter to the board of Par Pharmaceutical calling on the company to adopt “say on pay” as well, after its resolution received 56.8 percent support at Par’s Oct. 16 meeting.
Proposals to limit executive severance payouts, or “golden parachutes,” were supported by a majority of votes cast at seven companies. Institutional investors such as labor unions and public pension funds submitted most of those.
Alternative Tactic
Poponents have had mixed results with an alternative approach to companies that fail to respond to winning proposals, i.e., filing resolutions that call on the firms to create an official “engagement process” with the proponents of any resolution that receives majority support.
The International Brotherhood of Electrical Workers filed this proposal at OfficeMax, where it won 51.4 percent support this year. A similar IBEW resolution won 40 percent support at FirstEnergy, which has failed to respond to majority-backed proposals for three years. An AFL-CIO proposal at Pulte Homes received a 22.4 percent vote this year.
Note: This contribution was adapted from an article in the Nov. 16, 2007 issue of Risk & Governance Weekly. Cited vote results are calculated as a percentage of votes cast and include only meetings that occurred through October 31. Shareholder proposal results are based on votes “for” and “against,” excluding abstentions and broker non-votes.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
November 16, 2007 |
|
Counting Progress: The State of Corporate Boards Five Years After SOX
Submitted by: Subodh Mishra, Publications
Five years after the Sarbanes-Oxley Act (SOX) was signed into law, U.S. corporate boards are far more independent and responsive to the governance concerns of shareholders, though observers may conclude more needs to be done in some key areas including diversity, according to an analysis of 1,245 S&P 1,500 companies in 2002, and 1,425 in 2007.
Boards have taken significant steps to rebuild investor confidence following the corporate scandals of 2001 and 2002 that gave rise to the watershed legislation. Indeed, insiders have far less influence on corporate boards today than they did five years ago, while audit committees—critical to ensuring good governance, and a primary focus of SOX—are near to being fully independent,.
Approaches to board leadership are another example of marked change for the better. For instance, far more companies today have separated the positions of chairman and CEO than was the case five years ago. In 2002, 73 percent of companies had combined the posts, leading many shareholders and stakeholders to view America’s captains of industry as all-powerful figures insulated from shareholders and disconnected from directors. But that figure stands at just 55 percent today, while the number of non-employee chairmen who are independent has jumped 10 percentage points over the past five years to 17 percent in 2007.
The past five years also have seen an end to the age of the imperial CEO, which, in turn, has spurred further governance reforms. For example, the analysis finds that companies are now paying much closer attention to concerns surrounding executive leadership, with far more having succession-planning committees today than even one year ago, let alone in 2002.
Meanwhile, boards today are much more likely to engage with investors on concerns such as executive pay and takeover defenses, despite a five-year-long bull market that might otherwise have led many all-powerful corporate leaders to disregard shareholder entreaties in the pre-SOX era.
Investors, responding to the accounting scandals of 2001 and emboldened by SOX, have played no small role in prompting change. Classified boards, once the norm for S&P 1,500 companies, are far less prevalent today, for example. Fewer than half of all S&P 500 firms now have them, thanks primarily to investor pressure to dismantle the defense, but, also critically, to the growing presence of more independent and responsive boards willing to act on investors’ demands.
While governance reforms since SOX have been far reaching in many areas, some observers will conclude that more remains to be done. Advocates of greater diversity in corporate boardrooms will be disappointed by findings that show little improvement in the number of minority and female directorships since the watershed legislation was signed. Governance observers believed both groups would benefit from post-Enron reforms that called for greater board independence, but findings show minimal growth in the proportion of female directorships, and no change in the percentage of directorships held by members of a racial or ethnic minority group.
To view the entire paper, Counting Progress: The State of Corporate Boards Five Years After SOX, please visit here.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
November 15, 2007 |
|
Is US GAAP at a Tipping Point?
Submitted by: Marc Siegel, Head of Accounting Research
The SEC is holding an open meeting today to discuss the possibility of eliminating a reconciliation to US accounting rules for those companies who report in international standards. This is an important step along the path of U.S. companies adopting international accounting standards and moving away from US GAAP. This could mean U.S. accounting rules are going to become less relevant and over time U.S. companies will migrate to international rules. It's a controversial issue, and RiskMetrics Group's Financial Research and Analysis unit issued a note on the topic yesterday.
To access the note, Tipping Point for US GAAP, please visit the Accounting Section of RiskMetrics Group's Knowledge Center. We welcome your thoughts on this topic.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
New Study Identifies Large Differences in Global Sustainability Governance
Submitted by: Heidi Welsh, ESG Research Analyst
RiskMetrics Group’s Environmental, Social and Governance (ESG) team just released a new study today which identifies large differences in global sustainability governance. The extent to which large cap global companies are regulating themselves with regard to ethics, climate change, other environmental concerns, and labor and human rights varies significantly by nationality and industry sector. These findings emerge from RiskMetrics Group's year-long project assessing more than 1,700 global companies--including the S&P 500, the Toronto Stock Exchange 300 and the Morgan Stanley EAFE index excluding Japan--on more than 200 policy and performance indicators.
EAFE companies clearly outperform S&P 500 firms on both climate change and other environmental issues, but U.S. firms have the edge on ethics policies. For labor and human rights, overall performance between EAFE and S&P 500 did not differ substantially. Canadian firms (the TSX 300), overall, lagged companies in the other two indices, but did best on labor and human rights. In addition, while some individual companies stand out as clear leaders, overall average performance by sector and industry stood at less than 50 percent of the ideal defined in the research model.
To access the study, please visit here.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
November 14, 2007 |
|
Credit Card Master Performance Trusts
Submitted by: Nathan Powell, FR&A Analyst
RiskMetrics Group just recently completed a report on Credit Card Master Performance Trusts. The report examines why credit quality measures deteriorated across several credit card issuers during September, ending a summer in which credit quality stablized for most issuers in the survey group. Prior to the summer, we had seen credit quality measures deteriorate since early 2006.
The September data from our survey of credit card master trusts may indicate developing credit pressures for the U.S. retail consumer. We found that credit card master trusts whose underlying credit cards had direct exposure to the retail sector experienced greater deterioration in their credit quality measures compared to other master trusts in our survey group. Those credit card master trusts with direct retail exposure included those with private-label and co-branded credit cards.
For our survey group as a whole, our adjusted credit quality measure (accounts that are 60 or more days delinquent + charge offs) deteriorated during September 2007 on a sequential and year-over-year basis. That is 41 basis points sequentially, and 93 basis points year-over-year. While we cannot draw a straight line between the deterioration in the housing market and the deterioration in credit quality at several credit card issuers, the timing suggests that there is, at the very least, some connection. Looking forward, we anticipate that credit card charge off rates will continue to rise through the holiday season and into 2008.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Democrats Tap Nominees to Fill Commission Vacancies
Submitted by: Subodh Mishra, Publications
Democratic lawmakers have settled on Luis A. Aguilar and Elisse B. Walter to fill current and pending vacancies at the Securities and Exchange Commission, the Washington Post reported Nov. 14.
Citing unnamed sources, the paper reported that Senate Majority Leader Harry Reid, D-Nev., had submitted both names to the White House for approval. Under federal law, two of the SEC’s five commissioner seats must be filled by members of the political party that doesn’t control the White House. Accordingly, Democratic lawmakers are recommending replacements to President George W. Bush, who would then nominate the individual for congressional confirmation.
Aguilar, a securities lawyer at McKenna Long & Aldridge in Atlanta and a former SEC staff attorney, would replace Roel Campos, the SEC’s first Hispanic commissioner. Aguilar has received strong backing from Sen. Robert Menendez, D-N.J., who is co-chair of the Senate Democratic Hispanic Task Force.
Walters previously served as Deputy Director of the SEC’s Division of Corporation Finance and, before that, as staff member both in that division and in the Office of the General Counsel where her responsibilities ranged from litigation to legislation and advisory functions. She now serves as senior executive vice president, Regulatory Policy & Programs, at the Financial Industry Regulatory Authority.
Walters would replace Annette Nazareth, who announced last month that she plans to leave the agency, likely before the end of the year.
Aguilar was surprising choice given the view of him by some activist shareholders. In a 2004 interview, Aguilar branded the Sarbanes-Oxley Act a “political response … quickly and hastily done to address public confidence issues,” according to a report on HispanicBusiness.com. That may serve to ensure his approval by President Bush who, in light of contentious issues now before the commission, will be under pressure from corporate interests to support nominees sympathetic to the views of business, not just those of investors.
Separately, SEC Chairman Christopher Cox told lawmakers this morning that he favored moving forward on approving a rule on “proxy access,” or the ability of shareholders to nominate corporate directors.
Lawmakers and investors have lobbied against any decision on access in light of the departure of Campos and the pending departure of Nazareth, both of whom backed the right.
Testifying before the Senate Committee on Banking, Housing, and Urban Affairs, Cox said he “could not predict what the commission would do,” but made clear the status quo had to change in order to avoid a state of uncertainty around access that would likely result in “every litigant for himself.” The commission has taking no position on access following an appellate court ruling last year that held that the SEC had erred in barring shareholder proposals calling for the right.
Notably, Cox said the commission was not obligated to approve one of two opposing draft rules approved this summer that would either allow for or bar access, or to do nothing, as many have expected. According to Cox, the commission may also “adopt a rule that is different than either of those proposed.”
In his prepared testimony, Cox told lawmakers that the only requirement is that the “proposed rule, and the questions the agency has asked, provide fair notice to the public of what the commission is contemplating and the issues involved … so long as the final rule or rules are a logical outgrowth of what was proposed, we are free to amend the proposals and to consider improvements that the public comment process has brought to our attention.”
Lawmakers this morning will also hear from investor groups including the Council of Institutional Investors and International Corporate Governance Network, as well as issuer advocates such as the Business Roundtable.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
November 13, 2007 |
|
Extreme Value Hedging: How Activist Hedge Fund Managers are Taking on the World
Submitted by: Sarah Cohn, Marketing and Communications
A new book by Ron Orol of The Deal titled, Extreme Value Hedging: How Activist Hedge Fund Managers are Taking on the World, is fresh off the presses.
Orol examines how activist investors are impacting corporate boards through interviews with activist investors, money managers and corporate executives. He also predicts activist investors and corporate executives will soon be taking their battles online.
Chris Young, Head of M&A Research at RiskMetrics Group, provides commentary for the book on activist tactics. Overall, the book is an excellent read for anyone wishing to learn more about how the world of activist investing operates.
As a reminder, RiskMetrics Group is holding a webcast on Wednesday, November 14 at 1 p.m. EST on the current M&A and activism landscape. To register for the webcast, please visit here.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
November 12, 2007 |
|
2007 Review: M&A, Proxy Fights
Submitted by: Chris Young, Head of M&A Research, and Ted Allen, Head of Publications
RiskMetrics Group will host a webcast on trends in mergers and acquisitions on Nov. 14. For more details on that webcast, click here.
This year has been a tale of two M&A markets.
Before the credit crunch of August, U.S. investors demonstrated a greater willingness this year to oppose going-private transactions and other deals.
During the first half of 2007, companies announced a record $2.5 trillion in transactions, including $616 billion in purchases by private equity firms, according to Bloomberg News. The availability of inexpensive and abundant credit allowed private equity firms to pursue bigger targets, including First Data, Equity Office Properties Trust, and TXU--the largest-ever U.S. leveraged buyout.
Facing pressure from hedge funds, boards at Acxiom, Applebee’s, and other companies agreed to put their firms up for sale. After watching more boards approve private equity sales, investors became more skeptical of the fairness of initial offers and more willing to hold out for a better price.
Traditionally, target company shareholders have rarely turned down transactions. This year, however, investors rejected buyouts at Cornell Cos., Eddie Bauer, Lear, and Cablevision. The vote at Eddie Bauer in February was particularly noteworthy because no dissident investor had filed a Schedule 13D to publicly oppose the $9.25-per-share deal. In January, Cornell shareholders turned down an $18.25-per-share offer from Veritas Capital. The votes at Cornell and Eddie Bauer were among the first signs this year of an investor backlash against private equity buyouts.
In late October, ClearBridge, Gamco Investors, and other Cablevision investors rejected a $10.6 billion buyout by the firm’s founding Dolan family, which owns a 20 percent stake and has tried unsuccessfully twice before to take the cable television firm private. While the tighter credit markets have reduced the likelihood of other offers, the Cablevision shareholders argued that the Dolan family’s $36.26 per share bid undervalued the company.
In several cases this year, companies repeatedly delayed transaction votes while they tried to build sufficient support from shareholders. One prominent example is Clear Channel Communications, where the investor vote on a buyout by Thomas H. Lee Partners and Bain Capital Partners was delayed four times amid opposition from Fidelity Management and Highfields Capital Management. The buyout firms eventually raised their bid from $37.60 to $39.20 per share and won 98 percent support.
Other examples of delayed transaction votes include OSI Partners and Genesis Healthcare. In June, Inter-Tel postponed a vote on its sale to Mitel Networks amid fears that investors would reject the deal. Inter-Tel shareholders approved the sale in August after the company posted disappointing second-quarter results.
In the Clear Channel transaction, the private equity acquirers sought to win over skeptical investors by offering the opportunity to obtain up to a 30 percent “stub equity” stake, so they could share in the future profits of the privatized company. Similarly, the acquirers of Harman International Industries offered a 27 percent stake to Harman’s investors. Investors became more interested in stub equity transactions after watching private equity firms take companies private and then reap substantial profits a few years later through a public offering. While these stub equity stakes generally have limited liquidity and governance rights, the Clear Channel investors have negotiated certain governance rights, including the right to elect two of the new company’s 12 board seats.
In the Clear Channel, Lear, and Topps transactions, companies were ordered by Delaware judges to delay votes after shareholders filed lawsuits alleging that directors had breached their fiduciary duties. In the Lear case, a judge ordered the company to provide more information to investors on negotiations over the CEO’s severance package. In the Topps case, the court delayed the vote on a buyout by Madison Dearborn Partners and Tornante after concluding that the board failed to act in good faith to consider a competing offer from rival UpperDeck. The Topps ruling also is notable because the court decided to keep jurisdiction over the case, even though investors sued earlier in New York state court. The case illustrates that Delaware judges want to maintain their important role in overseeing transaction disputes between companies and investors.
Several companies bypassed a shareholder vote by agreeing to a friendly tender offer. One example was Laureate Education, which agreed to a $62-per-share offer from a private equity consortium in June after shareholders--including T. Rowe Price and Select Equity Group--objected to a $60.50-per-share bid. Friendly tender offers had been all but extinct until 2006 when the Securities and Exchange Commission amended its “best price” rule to exclude employment agreement payments to insiders. Tender offers can be more advantageous to acquirers because the transactions can close more quickly and there are no record dates to contend with. Also in June, the private equity purchasers of Biomet replaced a $44-per-share buyout with a $46-per-share tender offer.
Among the most contentious deals of the year was CVS’s acquisition of Caremark Rx, a Tennessee-based pharmacy benefits manager. Facing opposition from CtW Investment Group and other Caremark investors and a hostile bid from Express Scripts, CVS eventually increased its offer by $7.50 per share. Caremark investors, who received an additional $3.3 billion in value, approved the deal in March after a Delaware judge delayed the vote twice and ordered the company to provide more disclosure on investment bank fees and investors’ appraisal rights.
Another development this year was the greater activism by large mutual fund companies, which historically have taken a passive role. For instance, OppenheimerFunds helped lead a successful investor revolt in March at video game maker Take-Two Interactive, where the company’s former CEO had pleaded guilty to stock option backdating. Fidelity opposed the Clear Channel buyout, while T. Rowe Price made 13D filings to challenge Laureate Education’s buyout and Diversa’s going-private transaction.
After the Credit Crunch
The M&A climate has changed significantly after problems in the subprime mortgage market led to a wider corporate credit crisis in August. As credit tightened, banks tried to get out of their financing obligations by urging private equity firms to walk away from transactions. Shareholders at target companies almost overnight became less aggressive in agitating for better terms, realizing that in most cases the terms negotiated by their board earlier this year would not be bettered, at least in the near term. One notable example of this change was the mid-August decision by hedge fund Pershing Square to drop its opposition to a $5.3 billion buyout of Ceridian, a human resources firm.
Since August, some buyers have tried to back out of deals by either paying a reverse break fee (e.g., at Acxiom) or more commonly, by citing the “MAC” clause in the transaction contract, a clause that allows buyers to walk if there has been a “material adverse change” to the target’s business after the contract’s execution. The prospective acquirers of Harman International, Sallie Mae, and Genesco all have invoked these clauses to try to get out of those transactions.
With the relatively novel but now ubiquitous reverse break fee acting as a cheap option that caps a buyer’s ultimate liability, the mere threat of MAC litigation may force sellers to agree to reduced terms, regardless of the strength of the sellers’ legal arguments. The dearth of legal precedent in the Delaware courts on MAC clauses only compounds the dilemma for sellers.
In one case, a failed deal resulted in an extraordinary boardroom fight. On Oct. 31, Cerberus Capital withdrew from a management-led $6.1 billion buyout of Affiliated Computer Services, citing the poor credit market. The next day, ACS Chairman Darwin Deason, who was part of the buyout group, called for the ouster of five independent directors. Deason said the directors may have violated their fiduciary duties by failing to approve the deal before the credit crisis. The board members had sought to shop the company to other bidders and had urged Deason and Cerberus to drop an exclusivity provision. The directors agreed to resign, but they denounced Deason’s “bullying and thuggery.” The directors accused Deason of trying “to subvert the [sale] process in order to prevent superior alternatives to your proposal from being consummated.”
Notable Proxy Fights
As of mid-October, RiskMetrics Group had issued recommendations on 33 proxy contests that went to a vote, about the same number at this time last year. One notable difference this year has been the dramatic increase in the size of companies targeted by dissident campaigns. Three of these targets this year (Home Depot, Sprint Nextel and Motorola) have market caps above $40 billion. As the size of the targets increase, activist hedge funds have been forced to obtain the support of “mainstream” non-activist investors. Activists targeting $40 billion companies cannot simply form “wolf packs” of other hedge funds and expect to win a shareholder vote.
So far this year, it appears that activist hedge funds have been able to convince mainstream investors to support many of their activist campaigns. For example, Relational Investors was able to pressure Home Depot ($65 billion-plus market cap) into selling its supply business and forcing out high profile and controversial CEO Bob Nardelli in January. In October, Relational also successfully pushed Sprint ($50 billion-plus market cap) to force out CEO Gary Forsee.
In May, corporate raider-turned-activist Carl Icahn managed to capture 46 percent of the vote at Motorola ($40 billion-plus market cap), despite the fact that Icahn remains a polarizing figure in the investor community. Breeden Capital, led by former SEC chairman Richard Breeden, was able to capture an extraordinary 85 percent support at H&R Block ($7 billion market cap) in September.
The ability of activists to win support from mainstream investors has caused target companies to become increasingly willing to seek out settlements. As of early July, 32 potential proxy fights had settled, according to RiskMetrics Group data. Among the settlements were those reached at Comverse Technology, Southern Union, Pogo Producing, and Brinks. Most of the time, the accords are really target company capitulations that allow the board and management to save face. If one considers most settlements to be activist “wins,” then activists have easily won a majority of their engagements.
An open question for 2008 is what effect the credit crunch will have on the behavior of activist investors. Two of the most common demands by activist funds are to “sell the company” or to undertake a leveraged recapitalization. To the extent that there are fewer potential buyers, and target companies cannot tap into easy credit to complete recapitalizations, there may be fewer activist campaigns next year.
Qin Tuminelli of the M&A Edge team also contributed to this article. This article was derived from RiskMetrics Group’s 2007 Postseason Report and a recent M&A Edge Note.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
November 9, 2007 |
|
Will the SEC Prohibit Access Proposals in 2008?
Submitted by: L. Reed Walton, Publications
The Securities and Exchange Commission appears poised to adopt a rule that would bar investors from filing proxy access proposals in 2008, a prospect that has alarmed some investors and Democratic lawmakers.
John Nester, the SEC’s director of public affairs, said Chairman Christopher Cox intends to hold a vote on one of two competing draft access rules, though he has not specified which one. Cox then plans to put forward a “proposal to expand shareholder access after the beginning of the year,” Nester told Risk & Governance Weekly.
One of the proposed rules, released for public comment in July, would require investors to hold at least a 5 percent stake to file proxy access bylaw proposals. Cox, a Republican, and the two Democratic commissioners, Roel Campos and Annette Nazareth, voted for that draft rule. However, it appears unlikely that Cox could persuade a majority on the commission to adopt this rule this year. Campos left the agency in September, and Nazareth has announced plans to leave, as well, though she has not specified a departure date.
The second draft rule would essentially block investor access to the proxy altogether, a measure that Cox also voted for along with the commission’s two other Republicans, Paul Atkins and Kathleen Casey. It is this rule that Cox plans to hold a vote on, according to The Daily Deal newspaper, which would allow the SEC staff to resume granting corporate “no action” requests to exclude shareholder access proposals.
The issue of proxy access--the right of investors to nominate directors to appear on corporate proxy statements--has been debated for years by the SEC, companies, and investors. In comments on the draft rules, many investors complained that the 5 percent ownership threshold and new disclosure requirements for filing access proposals would be too onerous for most institutional investors. Corporate advocates warned that proxy access would be disruptive and called on the SEC to bar access proposals.
SEC observers have speculated that the poor reception to the draft rules, in addition to the resignation of Nazareth and Campos, would deter the SEC from trying to address proxy access this year. During a speech to the International Corporate Governance Network, Nazareth called on the SEC not to rush into adopting a new rule without a full complement of commissioners. (For more information on this topic, please see the Nov. 2, 2007, issue of Risk & Governance Weekly.)
Cox, however, insists that a nationwide rule governing access needs to be instituted. “Investors are not protected if we do absolutely nothing,” Cox told Dow Jones Newswires on Nov. 1, adding that if there is no hard-and-fast rule in place, proxy access in 2008 will depend on court decisions, which can vary by jurisdiction.
In response to investor complaints that the 5 percent threshold for filing access proposals is too high, Cox is also considering dropping that requirement to 3 percent when he crafts a new access rule for the 2009 proxy season, The Daily Deal reported.
Proxy access advocates expressed concern, but not great surprise, when asked about the possibility that the SEC would disallow access proposals in 2008.
“I wouldn’t be surprised if they say, ‘We’re going to bar the door for ’08,’ then take another look at [the issue] down the road,” Cornish Hitchcock, an attorney for the Amalgamated Bank’s LongView funds, told Risk & Governance Weekly.
If Cox again allows companies to exclude proxy access proposals, he will “go down in history as an anti-investor chairman,” Richard Ferlauto, director of pension and benefit policy for the American Federation of State, County, and Municipal Employees (AFSCME), told Dow Jones.
Democratic Lawmakers Urge SEC to Allow Access
A group of nine Democratic senators, led by Christopher Dodd of Connecticut, chairman of the Senate Committee on Banking, Housing, and Urban Affairs, have urged Cox not to curtail the right of investors to file access proposals while the commission debates the issue.
In a Nov. 1 letter, the senators called on the SEC not to take action on either draft rule and instead allow shareholders to continue filing proxy access resolutions based on the 2006 AFSCME v. AIG decision, where a federal appeals court ruled that the SEC improperly allowed the omission of an access proposal at American International Group.
“Permitting the post-AIG status quo to continue would protect shareholders’ existing rights, which is an important consideration,” the lawmakers wrote. “This approach could enhance director performance and make directors more attentive to investor concerns and values.”
The letter was also signed by Senators Daniel Akaka of Hawaii, Sherrod Brown of Ohio, Robert Casey Jr. of Pennsylvania, Tim Johnson of South Dakota, Robert Menendez of New Jersey, Jack Reed of Rhode Island, Charles Schumer of New York, and Jon Tester of Montana. All eight lawmakers serve on the Senate Banking Committee.
In the letter, the senators also disagree with Cox’s plan to adopt a new rule this year and then re-examine proxy access in 2008.
“We think such a course of action would be disruptive, could lead to having public companies comply with three different regulatory schemes in two years, and is not advisable,” the lawmakers wrote.
If the commission is intent on pushing a proxy access regulation through before the 2008 season, the agency should approve the rule that allows access proposals by 5 percent shareholders, the lawmakers said.
The Democratic lawmakers also expressed opposition to limiting the right of shareholders to file non-binding proposals. As part of the proxy access rule-making process, the SEC asked for public comment on various suggestions to reduce the number of non-binding proposals, such as allowing companies to adopt their own bylaws to limit shareholder proposals, or raising the resubmission thresholds significantly.
Nov. 14 Senate Hearing
The Senate Banking Committee plans to hold a hearing on proxy access on Nov. 14. Rep. Barney Frank of Massachusetts, who chairs the House Financial Services Committee, held a hearing on the issue in late September. Frank has urged Cox to scrap both draft rules and start over. Proxy access is “much too important to do without a full commission,” Frank told reporters on Oct. 16.
The SEC will hold an open meeting on Nov. 15, but the issue of proxy access is not on the agenda.
Ted Allen contributed to this article, which appeared in the November 9 edition of Risk and Governance Weekly.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
November 6, 2007 |
|
RiskMetrics Group Publishes SCAS 50 Power Rankings
Submitted by: Adam Savett, Securities Class Action Services
And the envelope please
Earlier today we released our first-ever Securities Class Action Services (SCAS) 50 Power Rankings Report, which highlights the top 50 plaintiffs law firms by dollar value of securities class action settlements and number of securities class action settlements from 2003 to 2006 in which the law firms served as lead or co-lead counsel.
The report is based on SCAS 50 data from the past four years, since we began publishing the SCAS 50 reports on an annual basis, but introduces the SCAS 50 Power Rankings, which are based on the position of each firm for each SCAS 50 survey year. The top five firms in the SCAS 50 Power Rankings were:
1. Bernstein Litowitz Berger & Grossman
2. Milberg Weiss
3. Coughlin Stoia Geller Rudman & Robbins
4. Barrack, Rodos & Bacine
5. Grant & Eisenhofer
Bernstein Litowitz also has the distinction of having placed first or second in each of the previous four surveys.
We also looked at the cumulative dollar value of securities class action settlements from 2003 to 2006. The top five law firms by settlement value were:
1. Coughlin Stoia Geller Rudman & Robbins
2. Bernstein Litowitz Berger & Grossman
3. Barrack, Rodos & Bacine
4. Millberg Weiss
5. Heins Mills & Olson
Of interest, Heins Mills & Olson made the list largely on the strength of a single settlement - the $2.5 Billion AOL Time Warner settlement in 2006. That settlement is one of the five largest securities class action settlements since the PSLRA was enacted.
The top ten firms in terms of number of settlements accounted for more than sixty percent of the