Reimbursement Proposals
AFSCME also is planning to submit a half dozen binding proposals calling for the reimbursement of solicitation expenses. Some observers believe this resolution may gain more attention in light of the SEC’s proxy access decision.

One such proposal, filed at Houston-based energy company Apache, calls for reimbursement of “reasonable expenses … incurred in connection with nominating one or more candidates in a contested election of directors to the corporation's board of directors, including, without limitation, printing, mailing, legal, solicitation, travel, advertising and public relations expenses …”

Limits would be placed on the repayment of expenses incurred. For example, reimbursement could only occur for elections after the bylaw is approved and for a “short slate” of nominees (i.e., less than half the board) where one or more is elected and cumulative voting is not allowed. The amount paid to the nominator may “not exceed the amount expended by the corporation in connection with such election.”

A similar proposal filed last year at Apache received 14 percent support, according to RiskMetrics data.

“If the reimbursement proposals do well, they may in the end supplant access,” says Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “I think it's the ultimate solution.” Elson has long been a champion of such proposals, arguing that proxy-cost reimbursement is a more prudent alternative to access.

Another proposal, submitted by SEIU, had called on CVS Caremark not to count uninstructed broker votes in director elections. At the company’s last annual meeting in May, former Caremark director Roger Headrick received a 43 percent “against” vote over his role in approving the pharmacy-benefits company's sale to CVS. The labor fund argued that Headrick would have failed to get a majority of votes cast (which is required for election) had uninstructed “broker votes” been excluded.

SEIU officials say the binding proposal was recently withdrawn after being challenged at the SEC. Davis Polk & Wardwell, as counsel for CVS Caremark, argued implementation of the bylaw proposal would cause the company to violate Delaware law, noting that the law had no provision “permitting the [c]ompany to deprive record holders of their vote,” which, CVS argued, the SEIU’s proposal would effectively allow.

The New York Stock Exchange in October 2006 proposed to bar uninstructed broker votes (which routinely are cast for management nominees) in uncontested director elections by January 2008, but the SEC has yet to approve the rule change. Some investors expected the commission would approve the measure for 2008 in light of the agency’s decision to allow companies to exclude access proposals.

“We’re still exploring how to keep the broker issue front and center for companies, investors, and the SEC,” noted Tracey Rembert, senior corporate governance analyst at SEIU, after confirming the fund would indeed pull the CVS proposal.

In a Dec. 14 letter to the Council of Institutional Investors, the SEC said it is still examining “many of the complex issues” raised by the proposed NYSE rule change. The letter, written by Erik Sirri, director of the Division of Trading and Markets, did not say when the SEC would take action.

Majority Voting
A longstanding board reform proposal also will receive fresh attention in light of the SEC decision to allow the exclusion of proxy access proposals. Majority threshold voting proposals, which typically ask boards to require directors to receive a majority of votes cast “for” and “against” to win election, will be filed at dozens of companies, proponents say, including many larger firms that have yet to adopt the reform.

Delaware Chancery Court Judge Leo E. Strine Jr., writing in the October edition of the Journal of Corporation Law, noted that “shareholder access has gone nowhere,” but that this “does not mean that management won.” Strine, like a growing number of governance watchers including Stanford Law School professor and former SEC commissioner Joseph Grundfest, argued that majority voting represents a more “potent weapon” to change the composition of the board and that directors are now “running scared of withhold campaigns, and increasingly ready to make the bargains necessary to avoid being targeted.”

The Carpenters’ fund, which pioneered majority voting proposals in 2004, plans to submit up to 100 such resolutions in 2008, the vast majority of which will be at large-capital S&P 500 companies.

“We’re starting to settle this year’s resolutions already, and I expect at this pace to get us to where we were last year, when roughly two-thirds of proposal filings were settled,” Ed Durkin, corporate affairs director at the Carpenters’ fund, told Risk & Governance Weekly.

A recent study by Neal, Gerber & Eisenberg partner Claudia Allen found that 44 percent of S&P 500 companies have adopted a “true majority vote election standard,” with many more having in place resignation policies that call on directors to step down if they receive a majority of “withhold” votes. Moreover, the recent adoption of a majority vote bylaw by pharmaceutical giant Pfizer, whose groundbreaking director resignation policy in 2005 spurred others to take that partial step instead of adopting a majority vote standard, may also push more companies to adopt bylaws.

“It’s deja vu all over again,” noted Allen in a recent interview. “Majority voting was an outgrowth of the apparent failure of proxy access back in 2003. Frustrations with the SEC in relation to proxy access now will continue to move majority voting along.”

Meanwhile, at least one company is challenging a 2008 majority vote proposal. The New York Times Co. is seeking to omit a proposal filed by Legal & General Assurance Pension, a holder of the newspaper company’s publicly traded Class A stock.

In a Dec. 14 letter to the SEC, Rhonda L. Brauer, the company’s secretary and corporate governance officer, argues that the proponent cannot file the proposal due to restrictions on the rights attached to Class A shares that limit holders to voting on 30 percent of the company’s board, certifying the auditors, “certain acquisitions, and the reservation of stock for options to be granted to officers, directors, or employees.”

In her letter, Brauer notes that the company’s dual-class stock and voting rights differential are a “means to manage for the long term and to protect the long-term editorial quality and independence of the The New York Times …”

Last year, the company was allowed to omit a proposal filed by Morgan Stanley Investment Management Limited targeting the firm’s dual-class stock structure. The Morgan Stanley fund responded by joining with other investors to withhold support from directors who are elected by Class A shareholders. Last year, there was 42 percent opposition, up from 30 percent in 2006.

A version of this article first appeared in the December edition of RiskMetrics Group’s Corporate Governance Bulletin.