Liability concerns have become a major issue for directors of U.S. company boards.

Board members today must meet higher standards of conduct under Delaware law. They also face the possibility that they may have to make personal payments to resolve investor lawsuits, as former WorldCom directors had to do. Meanwhile, shareholders have filed dozens of derivative lawsuits this year against directors over the alleged backdating of executive stock options. These issues were among those discussed by panelists at the National Association of Corporate Director'' annual conference in Washington on Oct. 16-17.

At a panel on "Director Liability and Legal Responsibilities," former Delaware Supreme Court Chief Justice E. Norman Veasey discussed the gradual evolution of the standards of conduct required of directors under Delaware law. According to Veasey, the Delaware courts originally took the position, as shown in the Allis-Chalmers case in 1963, that liability would only be found in cases where directors ignored "red flags" waved in their faces. In 1986, the Delaware Court of Chancery ruled in Caremark that directors were subject to new duties. As Veasey noted, the court in Caremark mentioned in a footnote that directors are expected to put into place a compliance program to prevent corporate legal violations and that failure to do so could indicate a violation of directors' fiduciary duty of good faith. Veasey noted that the court, in announcing this legal standard, made reference to the advent of the Federal Sentencing Guidelines, which, in connection with sentencing for criminal offenses by a company, provide credit to corporations that have a compliance program in place.

As Veasey noted, present-day standards of required conduct for directors may well be even higher than in the Caremark era. Earlier this year, the Delaware Supreme Court held that Walt Disney directors were not liable in the shareholder lawsuit over the severance package for former executive Michael Ovitz, despite "sloppy practices" by the board. However, as Veasey indicated, the court in the Disney case was reviewing conduct that occurred in 1996, and the court's decision might well have been different had the court been reviewing more recent conduct under present-day standards.

With U.S. mid-term elections less than two weeks away, both Democratic and Republican politicians are expressing outrage over executive pay practices.

On Oct. 24, Democratic lawmakers released a study that found that the proportion of corporate earnings that is used for top executive pay has doubled from 5 percent in 1993-1995 to 10 percent in 2001-2003. "In addition to hurting shareholder returns, this dramatic increase in executive compensation has had a detrimental effect on America's rank-and-file workers," the Democrats on the House Financial Services Committee said in a press release.

"It is amazing to me that executive pay continues to increase at extraordinary levels," said U.S. Rep. Barney Frank of Massachusetts.

Frank is the ranking Democrat on the Financial Services Committee and is poised to become chairman of the panel if his party wins control of the House. He introduced legislation in November 2005 to give shareholders a vote on company pay plans, but the bill languished without support from House Republicans.

Last week, President George W. Bush voiced concern about executive pay practices. In an Oct. 23 interview with CNBC, the Republican president said he is "astounded" by some pay packages and urged investors to press companies to tie salaries to performance measures.

"These compensation packages can get out of hand," Bush said in the CNBC interview, according to Bloomberg News. While incentives for executives are necessary, Bush stressed that companies should "make sure the incentive pay is rational."

"I don't think government should control salaries," the president said, "but I would hope shareholders would take a close look at some of these compensation packages."

In July, the Securities and Exchange Commission adopted new pay disclosure rules that will apply to firms when they file their 2007 proxy statements. The rules call on companies to explain the methodology they use for determining pay and short-term incentives.

Meanwhile, investors have given greater support to shareholder proposals calling for performance targets. As of June 30, those proposals had averaged 36 percent support, up from 30 percent in 2005 and 19.2 percent in 2004. Also this year, a new proposal calling for annual advisory votes on compensation reports averaged 39 percent support at four firms.

Executive pay also is an issue in the election for Minnesota's governor, according to Bloomberg News. The state's Democratic party is running a television advertisement that criticizes Gov. Tim Pawlenty over the stock-option grant practices at UnitedHealth Group.

The Republican governor, one of four state officials who oversees Minnesota's pension funds, abstained from the vote on whether to withhold support from CEO William McGuire and three other directors. Two board members received 28 percent withhold votes at UnitedHealth's annual meeting in May after disclosure that McGuire had received option grants worth $1.6 billion, including those with grant dates that coincided with quarterly stock price lows.

The governor abstained from the vote on UnitedHealth because he had received campaign contributions from McGuire. A spokesman for the governor said Pawlenty acted properly and since has returned all the contributions from UnitedHealth executives, according to Bloomberg News. The company announced Oct. 15 that McGuire will step down as CEO by Dec. 1.

The New York Stock Exchange (NYSE) announced this week it would move ahead to restrict voting by brokers in director elections beginning in 2008. The proposed rule change, which must get final approval from the Securities and Exchange Commission, is welcome news to investors who have long argued that the practice of allowing broker votes on elections skewed results in favor of management.

NYSE Rule 452 allows brokers to vote on certain "routine" proposals if the beneficial owner of the stock has not provided voting instructions to the broker at least 10 days before a scheduled meeting, according to the exchange. Director elections have been considered "routine," though shareholders and others have long argued against such a designation, particularly in recent years as institutional investors have pushed for majority voting in director elections and the ability to nominate board candidates.

"The goal of the NYSE has been to not allow the broker to vote on any proposal that substantially affects the rights of shareholders," Catherine R. Kinney, the NYSE's president and co-chief operating officer, said in an Oct. 24 press release. "[T]he election of directors is simply too important to ever be considered routine."

The NYSE estimates that 80 percent of all public company shares are held under the name of brokers. At some issuers this year, the casting of these undirected broker votes for incumbent directors may have spared them the embarrassment of failing to receive a majority of votes cast. At 20 S&P 500 companies this year, directors received withhold votes that exceeded 30 percent, according to ISS data.

The proposal follows recommendations of the Big Board's Proxy Working Group, created in April 2005 and chaired by Larry Sonsini of Wilson Sonsini Goodrich & Rosati, which is also looking at ways to improve the proxy and shareholder communications process. The group has created three subcommittees to: review the shareholder communication process; to examine the fees and costs in connection with the solicitation of proxies; and to educate investors to achieve greater shareholder participation in the proxy voting process.

Still, voting on directors has taken up much of the group's time, according to observers, with investors actively pressing members to eliminate broker votes on elections. "The election of directors is the most important shareholder franchise," Sonsini said, reflecting those views.

"It's certainly a step in the right direction," Council of Institutional Investors head Ann Yerger told the Dow Jones newswire. The plan would restore "some integrity" to the director election process, she said, because allowing discretionary voting for directors was the equivalent of saying that "ballot boxes should be stuffed" in favor of management-backed candidates.

The Globe and Mail had an interesting article the other day by Janet McFarland and Elizabeth Church titled "New Disclosure Rules to Reflect Evolving World." The article states that Canadian investors will soon have the opportunity to learn more about executive pay packages as regulators prepare to revise compensation disclosure rules introduced more than a decade ago.

The Canadian Securities Administrators (CSA) expects to have a new set of rules ready early next year, requiring full disclosure of virtually every detail of executive compensation. Please let us know your thoughts on executive compensation disclosure in Canada.

On Oct. 11, France's lower legislative chamber passed a bill that tightens restrictions on executive stock options. To become law, the measure must still pass the senate, which is scheduled to consider the bill in early November.

In addition to tax breaks for companies that issue free shares to rank-and-file employees, the bill would limit executives from exercising part of their options during their tenure. The measure leaves it up to the company's board of directors, or the supervisory board at companies with two-tiered boards, to determine what percentage of option packages must be held while the executive is in office--as long as the option incentives are properly disclosed, according to Agence France-Presse.

The share ownership legislation that applies to listed companies is one of a series of measures promised by Prime Minister Dominique de Villepin to promote "economic patriotism" among investors and reduce French companies' vulnerability to foreign hostile takeovers, according to the Associated Press (AP).

Initially, the legislation, as introduced by opposition legislator and former Prime Minister Edouard Balladur, called on shareholders to decide on what proportion of options were to be subject to the holding requirement. This provision was strongly opposed by the French employer association, Medef.

The Minority Shareholders Defense Association (ADAM) said it would continue to push for stockholders to have a direct say on the conditions attached to any option grants, just as they now have the right to approve the issuance of stock options. "Ever since stock options came into being, company boards have proven themselves incapable of tackling their abuse," Colette Neuville, ADAM's executive director, told the AP.

The measure follows public and investor complaints over executives' stock option entitlements, as well as the timing of some of their transactions.

Perhaps the most spectacular was the sacking of Noel Forgeard, the co-CEO of the European Aeronautics Defense and Space (EADS), in June following revelations that he sold millions worth of shares a few weeks before the announcement of production delays on the A380 Airbus.

The French financial markets authority, AMF, which is investigating the case, alleged Forgeard made a 2.5 million Euro ($3.6 million) profit on the options sale, and each of his three children made a profit of 1.4 million Euro ($1.75 million) two days later. Several other senior EADS executives made substantial profits on their option sales at that time, according to The Times of London. A spokesman for EADS said those involved "had no specific information" about the production delays when they sold their shares, The Times reported.

ISS today announced the implementation of a new corporate governance leadership program designed to leverage the expertise of its own corporate governance experts as well as others in the industry to share knowledge and exchange viewpoints about key corporate governance issues facing investors, corporations and their directors. The Fall schedule for ISS' new Governance Leadership Interview Series includes interviews with a number of experts on a wide-range of topics.

The first interview in the series features Doug Cogan, ISS' Deputy Director of Social Issues Services, discussing why environmental and social issues are gaining traction among mainstream investors. To access the interviews directly, please click here.

The European Commission moved a step closer to its goal of establishing the fundamental shareholder right of "one-share, one-vote" when the European Court of Justice (ECJ) ruled late last month against the Dutch government's holding of "golden share" takeover defenses in two firms.

European governments should "avoid wasting their time in introducing special share arrangements," commission spokesman Oliver Drewes told the International Herald Tribune following the ruling. Drewes said the ruling would aid the commission as it turned its sights on Germany, where for years the body has sought to repeal defenses protecting Volkswagen.

In 2003, the commission filed suit against the Dutch government, arguing the golden shares it held in telecommunications giant Royal KPN and postal-services company TNT hindered foreign investment in those firms and violated the principle of the free movement of capital.

The two companies were privatized in 1994, but the government retained a 20 percent stake in KPN and a 35 percent stake in TNT, formerly known as TPG. The golden shares give the Dutch government veto power over stock issues; restrictions on, or removal of, priority rights of ordinary shareholders; acquisitions, disposals or dissolution; withdrawal of the special share, bylaw amendments; and dividend distributions.

The Dutch government argued that its golden shares complied with Article 56 of the European Community that prohibits restrictions on the free movement of capital across national borders. "Even if a link were to be established between the special shares at issue and the decision to invest, such a link would be so uncertain and indirect that it could not be regarded as constituting an obstacle to the free movement of capital," the Dutch government contended, according to court records. Amsterdam also argued its golden share in TNT was justified because it would guarantee "universal postal service" and thus represented an "overriding reason in the general interest."

The court agreed with commission officials who argued that the special shares convey disproportionate influence to the government over important management decisions such as the structure of the companies and business activities. The fact that the special shares could only be withdrawn with the government's approval also provided ammunition for commission lawyers arguing against the defenses.

The commission views the ruling as a critical step toward removing barriers to cross-border acquisitions in what many investors view as an environment of renewed protectionism in Europe. After Mittal Steel launched a takeover of Arcelor earlier this year, Luxembourg and France enacted laws making it easier for firms to deploy takeover defenses.

Last month's ruling, however, may discourage such initiatives and put greater pressure on Germany to remove limitations that bar any investor from acquiring more than 20 percent of Volkswagen's voting rights. Commission spokesman Drewes said he "was absolutely confident that this case [Volkswagen] will go in the way that is favorable to the opinion of the European Commission." In 2003, the commission won similar cases against the Spanish and U.K. governments' golden shares in national champion companies, including airport operator BAA in Britain and Spain's Telefonica and energy giant Repsol.

UnitedHealth Group's announcement this week that CEO William McGuire will step down is the latest in a rash of chief executive departures at major U.S. corporations, which are on pace to set a new record this year. McGuire is the highest-profile executive so far to leave his job amid investigations into stock-option irregularities.

An unprecedented 152 U.S. chief executives--or 7.6 per business day-left their posts in September, according to executive recruiting firm Challenger, Gray & Christmas. Overall, 1,112 CEOs have stepped down through Sept. 30 of this year, up 10 percent from the same period last year. At this rate, the total number of CEO changes this year will easily surpass 2005's record of 1,322, which was twice the total in 2004, according to an Oct. 10 report by Challenger.

Let's put it this way. My company, ISS' Securities Class Action Services, has an entire business that focuses on researching and identifying new securities class actions. We have a team of people whose JOB is to research this stuff every day, 24X7. However, until today we did not have any record of a case filed October 2, 2006 against Forward Industries, which was the subject of a "notice" published to the class announcing the filing of the complaint. How is this possible?

Because the notice used was what many refer to as "buried notice," buried in the back pages of the Investors Business Daily. As I wrote almost two years ago,

Yes, the PSLRA does allow for notice by "widely circulated national business-oriented publication" or "wire service." As I have argued in the links above, however, (1) the industry standard in the year 2005 is to place such notices on a national business wire, and (2) there is no legitimate reason to deviate from this standard by providing "stealth" (but apparently legally adequate) notice through some random hard copy business publication such as IBD.

Two years later, this is even more true. Everyone who is interested in learning about securities class action filings monitors the wire services for announcements about such filings. No institutions or anyone else that I know of scans all of the "widely circulated national business-oriented publications" looking for random hardcopy announcements, nor should they be required to do so.

An interesting article in today's Business Times of Singapore titled "China Firms Not Keen on Foreign Directors," by Jean Chua highlights a new study by Heidrick & Struggles and Fudan University in Shanghai. According to the study, about 26 percent of Chinese companies-whether they are state-owned or private enterprises-say they would consider hiring a foreign director. However, close to half of them say they will not consider having a foreigner on board. The study also found that there is room for growth in corporate governance in China.

The New York Times today revealed that Dr. William McGuire, CEO of UnitedHealth Group, is now the latest CEO forced to resign due to irregular stock option practices. McGuire had been granted options over the years, which have led to criminal and civil investigations and public disapproval. McGuire along with the CEOs of McAfee, Cnet Networks and Boston Communications Group are among the latest executives to leave their jobs amid investigations into stock option irregularities.

The U.S. Securities and Exchange Commission has postponed consideration of proxy access from Oct. 18 until Dec. 13.

"We decided not to do some 'quick fix' next week," Commissioner Annette Nazareth told reporters on Oct. 12, according to Dow Jones Newswires. Nazareth said the commissioners may offer guidance for companies and shareholders at the December meeting. "I don't know where we will come out on this issue," she told Dow Jones.

The delay creates uncertainty for investors and companies, because the agency won't offer any guidance until after the filing deadlines at many firms for shareholder proposals for the 2007 season. Presumably, the SEC will need to reach an internal consensus on how to handle no-action requests by companies to exclude access resolutions. Four pension funds already have filed an access proposal at Hewlett-Packard, and more proposals are expected. The agency's staff typically rules on the bulk of no-action requests in late December, January, and early February.

The SEC issued an Oct. 11 press release noting that commissioners would discuss the agency's rules concerning director election proposals on Dec. 13, but that statement did not explain why consideration of that topic had been delayed.

"Chairman Chris Cox is a shrewd politician. I think that he's well aware of the controversy here and the fact that we're in an election year. By pushing past November, Cox keeps Congress out of the game," noted ISS Executive Vice President Patrick McGurn. "He also pushes commission action past the scheduled filing deadlines at most companies with Spring annual meetings. It looks like we'll see some access proposals on ballots during the 2007 season."

Before the postponement, institutional investors sent in a flurry of comment letters urging the agency not to block shareholders from filing access proposals next season. The Business Roundtable sent its own letter, calling on the SEC to continue to allow firms to omit those resolutions.

The SEC scheduled a hearing on proxy access after a U.S. appeals court ruled last month that the agency improperly allowed American International Group to omit a 2005 access proposal filed by the American Federation of State, County, and Municipal Employees (AFSCME) Pension Plan. That AFSCME resolution was modeled after a 2003 SEC draft rule that the agency abandoned amid corporate opposition and complaints that the process for allowing shareholders to nominate directors would be too complicated.

CFO.com has an interesting article today by Stephen Taub about CEO Pay. According to a new Corporate Board Effectiveness Study, nearly 40 percent of directors believe that pay of chief executive officers is "too high in most cases," and 81 percent of the board members favor increasing the link between CEO pay and performance.

A brand new initiative-the Global Framework for Climate Risk Disclosure-hopes to build on the progress made by the Carbon Disclosure Project (CDP) and Global Reporting Initiative (GRI) to help form a consensus around corporate reporting on climate change. The framework was formally unveiled at press events taking place in Boston and London today. It has four key reporting elements:

* Total GHG emissions from operations and projects-historical, current and projected
* Strategic analysis of climate risk and GHG emissions management
* Assessment of the physical risks of climate change
* Analysis of risks related to emerging GHG emission regulations

Eighteen months in the making, this framework has backing from 14 leading investor groups and other organizations, including CDP and GRI. Pension funds in California, Connecticut and the United Kingdom served on a steering committee, along with representatives from the United Nations Environment Programme Finance Initiative, Ceres and the Investor Network on Climate Risk, among others. More than 50 reviewers commented on this disclosure framework as it was being drafted.

The Global Framework for Climate Risk Disclosure is available for download at the CERES website.

So far, it appears that 2006 will be a record year for proxy fights. According to FactSet Research Systems' SharkRepellent.net Web site, there were 80 proxy fights during the first six months of the year. That exceeds the 54 fights in all of 2005, the 40 contests in 2004, and 74 contests in 2003. (SharkRepellent counts a proxy contest once an investor files a notice of an intent to submit proxy materials, so its numbers are higher than other firms that track only fights where actual materials are filed.) In addition to proxy fights, there have been 122 other activist campaigns this year where shareholders have advocated for stock buybacks, increased dividends, sale of the company, or other change, according to SharkRepellent.

Another factor that has led to more proxy fights has been the gradual erosion of poison pill plans, classified boards, and other takeover defenses. Fifty-four percent of S&P 500 companies don't have poison pills, while a majority of S&P 500 directors likely will be subject to annual elections by the end of 2006, according to ISS data.

This season, hedge funds have been successful in many of their dissident campaigns. According to investment bank Morgan Joseph, hedge funds have won board representation in 35 percent of their campaigns.

While the Heinz proxy fight generated significant attention from investors, many proxy fights have settled before going to a vote. By mid-August, 31 proxy fights tracked by ISS had culminated in a settlement. So far this year, 21 proxy contests have gone to a vote, as compared with 18 in all of 2005, according to ISS data.

The most notable company to settle a proxy fight this year was Time Warner, which reached an accord with Carl Icahn in February. Icahn, joined by Franklin Mutual Advisors, SAC Capital Advisors, and JANA Partners, raised concerns about the company's strategy to release value for shareholders. In early February, Icahn and his allies presented a report that called for Time Warner to be split into four publicly traded companies and to buy back at least $20 billion of stock. A week later, Icahn and the company announced a settlement, under which Icahn agreed not to run a minority slate, while management committed to increase the size of a share buyback, slash additional costs, and appoint two new directors. The Time Warner case is a prominent example of a recent trend of hedge funds banding together to advocate for governance, strategic, or financial change.

Other recent settlements include Acxiom's settlement with ValueAct Capital, the agreement by Pep Boys to nominate four directors proposed by Barrington Capital Group, and the settlement that Topps reached with Pembridge Capital Management and Crescendo Partners.

Settlements between issuers and activist shareholders are typical of the compromise a target company will "choose" when it becomes clear that it will lose a proxy fight. With a settlement, the issuer may be able to extract some concessions from the dissidents (usually a board seat or two) that it was unlikely to have obtained if the original slates had gone to a vote. Moreover, the company is able to save face by not officially "losing" the contest. At the same time, the dissidents often can get everything they asked for and appear reasonable, which can only enhance their options in future negotiations.

In addition to Heinz and Time Warner, other noteworthy proxy fights included:

BASF's Hostile Tender Offer for Engelhard: German chemical giant BASF launched a proxy contest for five seats on Engelhard's classified board along with a hostile tender offer. Engelhard, a New Jersey-based firm that makes pollution control equipment, countered by offering a recapitalization plan that called for a $45 per share cash self-tender for up to 20 percent of its shares. BASF originally offered $37 per share and then raised its bid to $39. On May 30, three days prior to the scheduled meeting, Engelhard announced a merger agreement with BASF and recommended that investors accept the German firm's $5 billion offer. Shareholders subsequently tendered more than 90 percent of the shares.

Massey Energy's Proxy Fight With Third Point: Massey Energy operates coal mines in West Virginia, Kentucky, and Virginia. Third Point nominated two directors, arguing that the board needed a "new voice." Third Point claimed that the company has "massively" underperformed industry benchmarks and had "lavished" compensation on its CEO. Management argued that its strategic plan has contributed to a significant increase in shareholder value in the past five years and that the board had been responsive to shareholder concerns. After a dispute over vote results, the company agreed in July to allow the dissident nominees to join the board and to reimburse some of their legal fees.

InfoUSA's Proxy Fight With Dolphin: Dolphin LP sought the election of three nominees to infoUSA's board. The dissidents faced an uphill challenge because CEO and Chairman Vinod Gupta and his family owned 43.6 percent of the Nebraska-based mailing list company. Dolphin argued that the company has performed poorly since 2001 and has traded at multiples that are below those of its public peers. Management countered that it delivered 4 percent organic revenue growth in the first quarter of 2006 and was implementing a strategic plan to position the company for continued growth. The incumbent directors narrowly survived, winning at least 50.7 percent approval in May. Dolphin reported that investors not affiliated with management supported the dissident slate by a 13 to 1 margin.

The ISS Global Policy Board is encouraging investors, corporations, and other interested parties to submit comments on six major U.S. governance issues. The comments will be considered as ISS updates its proxy voting policies before the 2007 season.

Those six issues include: director election reforms; the definition of an independent director; the use of a corporate performance test for evaluating directors; stock-option grant practices; auditor ratification; and climate change disclosure.

"The need for open dialogue and respect for multiple viewpoints has never been greater. Shareholders and companies continue to debate key governance issues, such as majority voting, executive compensation, and climate risk," said Martha Carter, the ISS managing director who chairs the Global Policy Board. "At ISS, we believe that sharing feedback and listening to multiple views on these issues is critical for effective policy formulation."

Comments are due by Oct. 11. For more information on how to submit comments, please visit here.

ISS has just released its 2006 Postseason Report, which highlights the key issues and voting statistics from the 2006 proxy season. This year's report covers executive pay practices in the U.S. and globally, the options backdating controversy, majority voting and board accountability, the current M&A and proxy contest environment, the rise in social shareholder proposals, Delaware law developments and international regulatory developments.

To view the full report, please visit here.

A new study by University of Michigan researchers concludes that investors have incurred significant losses at companies that have been accused of backdating executive stock options.

The researchers analyzed 48 firms that have been implicated in backdating and found that investors lost an average of 8 percent in market value (or $510 million per firm) during the 21 days around the disclosure of backdating allegations, according to Compliance Week. At most of these firms, the losses far outweighed the potential gains ($600,000 per company on average) that executives and directors could have received from backdating options. (The study didn't look at the potential gains that employees might have received from backdated options.)

"For a small gain to themselves, [executives are] putting their shareholders at huge risk," M.P. Narayanan, one of the study's authors, told Compliance Week. "Shareholders might have been better off if executives just asked for more money."

At those 48 companies, investors suffered abnormally negative returns at 35 firms, the researchers found. The most significant (market-adjusted) declines were at Vitesse Semiconductor (57 percent) and Jabil Circuit (31 percent).

The researchers also found that most of the investor losses (5 percentage points of the average 8 percent drop) occurred in the nine days before the first public disclosure of backdating accusations. According to the study authors, "this finding suggests that some insiders or hedge funds may be receiving word of the likely filing of backdating complaints and either selling or shorting the stock in advance."

The study may prompt some lawyers for investors to investigate their potential client losses in the weeks prior to the first public disclosure, rather than base their claims on a date right before the public disclosure, C. Hunter Wiggins, a partner with Sonnenschein Nath & Rosenthal, told Compliance Week.

"If a huge stock price drop occurred before the public disclosure price, plaintiffs' attorneys might try to use a date earlier than the traditional date immediately before public disclosure," Wiggins said. "They won't want to leave 75 percent of the damages on the table."

Bloomberg News estimates that investors collectively have lost $7.9 billion in market value from the option-timing scandal. Of the 117 firms that announced option investigations before Aug. 31, two-thirds suffered market value declines the next day, which averaged 2.6 percent.

Some investors have chosen to file derivative lawsuits against corporate officers and directors after concluding that they had not suffered sufficient investment losses from alleged option manipulation to mount a viable class-action case. So far, 17 companies have been hit with securities class actions over option grants, according to SCAS data. Meanwhile, more than 80 companies now face derivative lawsuits arising from their option practices, according to The D&O Diary, a Web log maintained by Kevin LaCroix of OakBridge Insurance Services.

The Amalgamated Bank's LongView Funds are filing resolutions at six companies that have faced regulatory investigations into their stock option practices. The proposals appear to be the first on this topic for the 2007 proxy season.

In a Sept. 27 press release, the labor-affiliated family of index funds said it would file proposals at Analog Devices, Apple Computer, Brooks Automation, Macrovision, Progress Software, and Sanmina-SCI. Those firms are among the more than 125 U.S. companies that have announced internal or regulatory probes into whether they backdated or otherwise manipulated the timing of stock option grants to maximize compensation for senior executives.

The LongView proposals urge the companies to adopt fixed dates for option grants, such as 45 days after the end of the fiscal year. The resolutions make an exception for new executives from outside the company, provided that option grants are not coordinated with the release of material, non-public information.

"Backdating is directly contrary to the goal of using options to reward executives who increase shareholder value to the benefit of all shareholders," Julie Gozan, vice president of Amalgamated Bank, said in a press release. "Investors have watched this story unfold, but until now they have not been able to do much about the problem. Now it's time to act."

In July, the SEC adopted new disclosure rules that require firms to disclose whether grant dates are coordinated with the release of material, non-public information. If the exercise price of an option grant is not the closing market price on the grant date, companies must provide a description of the methodology for determining the exercise price.

Meanwhile, Federal Bureau of Investigation officials said this week that the bureau is investigating 52 companies over their option grant practices. Chip Burrus, who oversees the FBI's criminal investigations, told Bloomberg News that the bureau is encouraging firms to come forward and admit wrongdoing.

On Sept. 27, Jacob Alexander, the former CEO of Comverse Technology, was arrested in the African nation of Namibia. U.S. prosecutors said they will seek to extradite him back to the U.S. to face charges of conspiracy, securities fraud, and making false filings to the SEC, according to Bloomberg News. Alexander became a fugitive after prosecutors charged him in August with backdating stock options from 1998 to 2006. Four other former executives at Comverse, a New York-based software maker, and Brocade Communications Systems have pleaded not guilty to criminal charges that stem from option grants.