Listed infrastructure is a new asset class around the world. Toll roads, airports, ports and the like have found a way into investor's portfolios, especially institutional investors, largely because of their reliable cash flows. In Australia, investment banks such as Macquarie Bank and Babcock & Brown have helped spur rapid growth in the Australian listed infrastructure market, with Macquarie having three listed infrastructure vehicles on the Australian Stock Exchange and Babcock & Brown two. Macquarie especially is now launching infrastructure funds around the world, including listed funds in Singapore, Korea and the US.

These vehicles have been marked by innovative and complicated structures, including triple stapled securities consisting of domestic and international companies stapled to a trust, and innovative governance arrangements. On 24 February 2006, a conference organized by ISS Australia and the University of Melbourne's Centre for Corporate Law and Securities Regulation, "Corporate Governance: Managing Risk and Driving Value" saw investors, directors, advisers, academics and company in-house governance professionals hear three key investment players speak on the governance challenges listed infrastructure funds posed to investors.

More U.S. companies are trying to head off shareholder proposals seeking majority board elections by changing their bylaws to require a majority of votes cast to elect a director.

The latest firms to embrace a full majority vote standard include Alaska Air Group, Altera, and Safeway. These changes bring to at least 18 the number of companies that have adopted a majority vote bylaw plus a resignation policy for incumbents who fail to gain the requisite vote, an approach commonly referred to as the "Intel model." Another seven companies have confirmed that they are in the process of doing so.

Efforts to facilitate proxy voting, improve executive compensation disclosure, and to limit the use of takeover defenses will likely dominate continental Europe's corporate governance debate this proxy season.

I've been writing about this for a while over at the Securities Litigation Watch blog (see my posts here and here, for example), but the SEC provided institutional investors with yet another reminder today of the importance of filing claims in securities class action settlements.

As stated in this Litigation Release, the SEC today filed a motion with the federal court in Colorado requesting approval of its distribution plan for the over $250 million settlement reached in its financial fraud investigation of Qwest Communications International. Notably, the SEC proposes to distribute the $250 million via a completely separate securities class action settlement involving Qwest Communications International.

The SEC proposes that the claims administrator handling the securities class action settlement (Gilardi & Co.) also handle the distribution of its settlement. The SEC is increasingly using class action claims administrators to distribute SEC settlements wherever possible because it is a "win-win" for both the SEC and investors. Specifically:

--the SEC does not have to serve as, or hire, a separate claims administrator, saving both time and money;
--using this method, investors should only need to fill out one claim form to recover in both the securities class action and SEC settlements; and
--no attorneys fees are deducted from the SEC money ($250 million in this case) added to the settlement pot.

The SEC's proposal today regarding Qwest shows that investors who fail to file claims in securities class action settlements increasingly risk not only leaving this class action money on the table, but also significant sums of money from SEC settlements.

Communication between companies and shareholders over executive remuneration has improved, both in terms of numbers of companies approaching shareholders and the quality of dialogue, according to RREV, the UK corporate governance body, jointly owned by the National Association of Pension Funds and ISS.

Just when you might think the Europe is making progress with corporate governance regarding its takeover rules, some Member States seem to be pushing back in the other direction. This week there were reports that France is considering legislation to allow companies to use poison pills. According to an article in the FT (http://news.ft.com/cms/s/95720648-a348-11da-ba72-0000779e2340.html ) the new legislation will allow companies to do a directed issue of discounted convertible warrants to existing shareholders. The part of this that goes against the EU directive is that the new law would not require reciprocity -- companies would only be allowed to use such defenses if the company making the bid also had the same access to a defense. In response to France's action earlier this week, Italy has also started making statements indicating that they might be considering revisions to their takeover laws. (http://news.ft.com/cms/s/8994ecc6-a412-11da-83cc-0000779e2340.html)

Every year, millions of dollars pass from corporations into the political process. While the Bipartisan Campaign Reform Act of 2002 applied some increased restrictions on these funds, including the prohibition of unlimited contributions to national political parties or committees controlled by federal office holders, it has done little to address funds that move through other channels. Corporations are free to contribute so-called "soft money" through industry and trade associations, certain state and local political committees, and nonprofit political organizations known as "527s" that generally report to the Internal Revenue Service rather than the Federal Election Commission (FEC).

Disclosure of some types of contributions is required by the FEC, as well as by certain state and local regulations; however, some shareholders are concerned that loopholes and limitations in this disclosure result in a lack of accountability at the corporate level. Shareholders advocating increased disclosure of corporate political contributions file dozens of shareholder resolutions each year calling for transparency into this information, raising the question: do existing regulations and disclosure requirements provide shareholders with adequate insight into their companies' involvement in the political process?

On Friday, February 17th, Time Warner and Carl Icahn settled their putative proxy fight a little over a week after Lazard issued a report commissioned by Icahn in support of his agenda. Speaking as a former investment banker, I can attest to the blood, sweat and tears that went into the report, perhaps the most in-depth analytical presentation I've ever seen an investment bank put together for public consumption. This clearly was not a frivolous exercise or some kind of trial balloon, so it's a little surprising that the fight was dropped a week and a half after the report's highly public unveiling. Icahn faced a February 19th deadline to submit nominees to the board, and it's clear that after sifting through the tea leaves he decided that a settlement would be more productive than a proxy contest. Alan Murray in today's Wall Street Journal talks about some of the lessons that shareholders should draw from the "Icahn affair."

ISS' SEC Comment Letter Regarding the Internet Availability of Proxy Materials

Dear Mr. Katz:

Institutional Shareholder Services Inc. ("ISS") is pleased to submit these comments on the Commission's proposed amendments to the proxy rules under the Securities Exchange Act of 1934. We commend the Commission both for its consideration of widely adopted technical advances and for the range of questions asked in an attempt to improve the proxy materials distribution process for investors and issuers. Institutional Shareholder Services generally endorses the proposed amendments with the expectation that these changes will facilitate wider access to, and review of, proxy materials helping investors to make more informed investment decisions, increase investor participation in the proxy voting process, save money for issuers (ultimately benefiting their stockholders) and allow for additional "low cost" communication between investors and issuers as well as between dissident shareholders. Finally, these proposed changes will accelerate the ongoing movement of proxy voting in the United States from a paper based process to a electronic, data based process which should increase timeliness, accuracy and consistency.

A recent study of 5,300 U.S. companies has found that there is a strong positive correlation between improved governance and greater market value.

Conglomerates are not born rather they are created primarily via acquisitions. Many of the acquisitions used to build up conglomerates were undertaken based on the advice of investment bankers and attorneys, the same advisors that now counsel a reversal of course and the sale of "unrelated" businesses. Advisors first trumpet the supposed synergies to be derived from sharing the same roof, and then turn around and sing the praises of the "strategic focus" that comes from going it alone. Of course, the bankers and lawyers make their fees coming and going.

This change of heart phenomena is not limited to the build up and breakdown of conglomerates. On February 13, Merrill Lynch (MER) agreed to swap its mutual fund management business for a major stake in BlackRock Inc. (BLK). This move is in effect a reversal of the "one-stop shop" strategic rationale that was all the rage in the 1990s and which was used to justify a significant amount of M&A activity in the financial services industry.

Of course, hindsight is often 20:20, and no one can ever know for sure if the synergies forecasted for an acquisition will ever by realized. Yet the ease at which advisors apparently are able to "do a 180" should give shareholders pause when evaluating the importance of fairness opinions supporting acquisitions. Advisors may be able to profit twice despite being "wrong," but shareholders do not have that luxury. As such, ISS recommends that shareholders apply a healthy dose of skepticism whenever a company justifies a deal based upon the receipt of a fairness opinion or highlights the participation of a brand name advisor.

As widely discussed in articles such as this one, Nortel has agreed to pay $2.4 billion to settle securities class action lawsuits concerning accounting irregularities. According to the SCAS database, the settlement will be the 5th largest ever, behind only Enron ($7.14B), WorldCom ($6.15B), Cendant ($3.18B) and AOL Time Warner ($2.65B).

According to Nortel's press release on the settlement and published reports, the settlement will also include an interesting (especially if you work at ISS) corporate governance-related term. In its press release, Nortel states that:

The proposed settlement is also conditioned on Nortel and the lead plaintiffs reaching agreement on corporate governance related matters and the resolution of insurance related issues.

Nortel is committed to benchmarking its corporate governance practices to those of companies ranked in the top quartile by Institutional Shareholder Services. "The Board of Directors strongly believes that sound and responsible corporate governance is integral to Nortel's future," said Harry Pearce.

While it is not completely clear from the quote above that the benchmarking to ISS' ranking is a term of the settlement, articles such as this one in the E-Commerce Times suggest that this is the case:

In addition to the payments, the agreement will likely include some requirements that Nortel adhere to certain corporate governance standards going forward....

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Nortel said while details were still being hammered out on the corporate governance terms of the agreement, it was comfortable being compared to the top-ranked publicly traded companies in terms of corporate governance as measured by Institutional Shareholder Services.

Recently enacted legislation by state regulators requires investment managers to either divest from companies with ties to Sudan because of the Sudanese government's involvement with state sponsored terrorism, or to report on those companies they hold in their public pension fund portfolios.

Illinois, New Jersey, Oregon, Arizona and Louisiana already have Sudan screening mandates in place with differing guidelines affecting investment managers, who manage public pension funds. For example Arizona requires state pension funds to report all holdings in companies doing business with state sponsors of terrorism, while Illinois requires public pension funds to divest securities with ties to the Sudan in phases beginning in January 2006. Sudan divestiture and reporting legislation has also been introduced in New York, North Carolina and Vermont and is expected to be implemented in the coming months. Learn more about the various states legislation.

California state Senator Richard Alarcon has introduced a bill to require companies incorporated in the state to elect directors "by a majority of votes cast."

SB 1207, introduced Jan. 26, is supported by the California Public Employees' Retirement System (CalPERS), which said last March it would pursue changes to state laws to implement majority voting. Read the entire article after the jump...

Royal Dutch Shell will have hoped to satisfy investors with its annual results, announced last week. Investors in Shell should also be interested in how the Anglo-Dutch company has worked to satisfy regulators of the three exchanges on which it is listed: London, Amsterdam and New York.

Global companies such as Shell are under intense pressure from shareholders in various corners of the world to establish and maintain corporate governance best practices. This is not easy when you have to satisfy different sets of listing requirements, prescribed by the exchanges on which Shell's stock trades. And the fact is that Shell does not. Shell follows the corporate governance principles set out in the UK combined code of corporate governance, but discloses significant ways that its standards differ from those followed in the US. This is in line with NYSE rules, although there is significant deviation in corporate governance requirements in several areas. But before investors sound the alarm bells, this is something for them to be aware of, rather than distressed by. Read the entire article after the jump...

China has enacted new corporate governance rules, but market observers caution that the impact may be modest and that most Chinese companies still have a long way to go to reach international corporate governance standards.

The amendments to China's Company Law, which took effect Jan. 1, mark the first major changes to the law in several years. China's capital markets have been roiled by several corporate scandals, including the arrest of Delong Group executives. Delong's actions, dubbed by the online China Daily as the "largest financial crime" in Chinese history, involved alleged stock manipulation by management. Delong executives were charged with utilizing company investments in both public and private companies to surreptitiously increase stock prices.

The new amendments reflect the government's interest in preventing future corporate scandals. Significant among these amendments include requirements to seek shareholder approval for the provision of loan guarantees or investment in other enterprises. Read the complete article from ISS' Publications Division after the jump...