Chairman Christopher Cox of the Securities and Exchange Commission told lawmakers this week that the agency plans to issue proposed proxy rule changes by late July, in an effort to have final rules in place before the 2008 U.S. proxy season.

Cox said the proposed rules would address non-binding shareholder resolutions and proxy access (i.e., the ability of long-term investors to nominate directors to appear on management proxy statements). As part of this process, the commission also is reviewing a proposed New York Stock Exchange rule to bar brokers from casting uninstructed shares in board elections.

While Cox signaled that the SEC would not revive a draft 2003 proxy access rule that would apply to all companies, his comments suggested that the commissioners are still trying to reach an agreement on the issue. "We're still actively engaged in discussions," he said.

Cox made his comments during a rare appearance by all five SEC commissioners before the House Committee on Financial Services. For almost four hours on June 26, lawmakers quizzed the SEC officials on various topics, including the competitiveness of U.S. capital markets, the ability of shareholders to sue bankers and others who help companies defraud investors, whether small companies should be subject to internal control reporting requirements, and a pilot program that requires advance commission approval of corporate fines.

While Cox said earlier that the SEC would issue a rule this summer, he was more definitive at the House hearing about the expected timetable. However, he declined to shed much light on the new rules during generally respectful questioning from lawmakers. Cox, a former Republican congressman from California, previously served on the financial services committee.

Rep. Barney Frank, the Massachusetts Democrat who chairs the House panel, said the committee would hold a "full hearing" after the new proxy rules are proposed. "There is a lot of interest on the issue," he noted.

The commission has struggled for years to reach a consensus on proxy access. The SEC, which abandoned the draft rule in 2005 amid corporate opposition, was forced to revisit the issue after a New York-based federal appeals court ruled in September 2006 that the agency improperly allowed American International Group (AIG) to exclude a proxy access proposal.

Shareholder advocates, who say that proxy access is needed to ensure board accountability, have urged the SEC to clarify that investors may continue to file access resolutions at specific companies. Access proposals received 45 percent support at UnitedHealth and 43 percent at Hewlett-Packard this year. An access proposal filed by a dissident investor will be on the ballot July 16 at Cryo-Cell International, a small-cap firm in Florida.

Corporate interests have argued that proxy access is not necessary, given the various reforms already adopted by many companies, such as majority voting in board elections.

During the hearing, several Democratic lawmakers spoke in favor of proxy access. "This is an issue of great significance," Rep. Frank noted, according to the Associated Press. Another lawmaker said he would be concerned if the SEC adopts a high economic threshold that would bar most shareholders from participating. Rep. Brad Sherman from California observed that "the world has not caved in" after the SEC stopped granting corporate "no action" requests to omit access proposals following the AIG ruling.

Noting that the AIG decision applies only to one section of the country, Cox said, "we need to make sure that there's one rule for the whole country, that everyone understands it, and that we have it in time for the next proxy season," he said.

Annette Nazareth, one of two Democratic commissioners on the SEC, noted her support for the commissioners to address the issue. "I would want action on proxy access as soon as we can," she said.

It appears that Cox is leaning toward allowing shareholders to pursue access proposals at specific companies, instead of proposing a universal rule that applies to all issuers. "I share your concerns about imposing a federal set of detailed rules on what is a matter of state law," Cox told lawmakers. "A national bylaw is not an approach I would favor."

ISS is pleased to make available its 2007 Post-Season Preview article. During the 2007 proxy season, shareholders gave greater support to proposals seeking advisory votes on executive pay, majority voting in director elections, and the right to call special meetings. "Clawback" and golden parachute resolutions also fared better this year, as did new resolutions seeking reforms in stock option practices and how companies calculate supplemental retirement benefits.

Pay-related proposals received the most attention; almost 40 proposals that seek an annual shareholder vote on compensation–or "say on pay"–have been voted on. To learn more about proxy season 2007 developments, visit here.

All five commissioners of the Securities and Exchange Commission will appear at a committee hearing in the House of Representatives. Commissioners are scheduled to testify before the Committee on Financial Services on June 26 at 2:00 p.m. in Washington.

The SEC has drawn criticism from investors this year on a number of issues. Investor groups and state officials complained after the agency decided to file a "friend of the court" brief with the U.S. Supreme Court in February in support of corporate defendants in a securities case involving pleading standards. Shareholders also have expressed concern over Chairman Christopher Cox's push for unanimous commissioner approval of corporate fines, and about news reports that the agency was considering mandatory arbitration of securities claims.

Earlier this month, Cox, a Republican, sided with the two Democratic commissioners in asking the Solicitor General's office to support shareholders in another Supreme Court case involving the liability of bankers, vendors, and accountants who help companies defraud investors. That recommendation was opposed by other Bush administration officials and business groups.

Meanwhile, business representatives and some lawmakers are urging the SEC to ease the internal control requirements of Section 404 of the Sarbanes-Oxley Act and to exempt smaller companies. Companies complain that compliance costs are too high and that Section 404 leads to needless duplication of work. The SEC will be taking public and industry comments until July 12 on a proposal to streamline auditing standards.

For more information on the hearing, visit here.

Despite criticism of the SEC from both investors and companies, Rep. Barney Frank, the Massachusetts Democrat who chairs the House panel, stresses that the hearing is merely exploratory. "The fact that we're having a hearing doesn't mean that we've come to any negative conclusions" he told the Washington Post.

A forthcoming court ruling on a foreign investor's request to bar condiments maker Bull-Dog Sauce from deploying its "poison pill" takeover defense holds the promise of measurably altering Japan's market for corporate control.

The court's decision will have far-reaching implications for merger and acquisition activity in Japan while also signaling to investors how seriously the world's secon-largest capital market views the rights of shareholders, governance observers say.

"This will be a seminal case," Scott Jones, a corporate lawyer at the Tokyo office of Jones Day, told The Wall Street Journal. "It will shape the playing field."

At issue is the pill adopted by Tokyo-based Bull-Dog Sauce in response to a bid last month from activist fund Steel Partners Japan Strategic Fund (Offshore). The defense specifically targets Steel Partners, whereby the company could issue warrants to selectively dilute the fund's stake from a current 10.5 percent to less than 3 percent.

Provisions within the plan bar Steel Partners from converting warrants into shares, unlike other shareholders would be allowed to do. The fund would be entitled to just 396 yen per share, or roughly 23 percent of the value of its current tender offer to shareholders, and provisions also allow the company to forgo a cash award, potentially leaving the fund with little more than worthless paper.

Fund officials have branded the pill discriminatory and in contravention to Japanese company law, which requires equal treatment for all shareholders.

Bull-Dog Sauce, whose trademark Worcester-style sauce is a fixture in most Japanese kitchens, rebuffed the Steel Partners offer on June 7, saying it would damage "corporate value and the collective interests of shareholders." Management is defending the pill as "legal and appropriate."

Steel Partners is calling on shareholders to vote against a proposal authorizing the pill's deployment at the company's June 24 annual meeting. Those calls are being buttressed on the legal front where the fund has filed an injunction request with the Tokyo District Court to keep the company from installing the pill if shareholders approve the measure.

Analysts suggest the court's decision may hinge on how it views the fund's May 18 offer for the company. Specifically, deliberations will likely center on whether the fund is strictly seeking control, or is attempting to use the bid to achieve short-term gains in a practice known as "greenmail."

Greenmailing, by definition, precludes other investors from seeing the same financial benefits as those of the bidder, which, under terms of the Bull-Dog Sauce offer, would not be the case. The fund also says it has held a stake in Bull-Dog Sauce since 2002.

Steel Partners has in recent years bid on a handful of Japanese companies that saw their stock price head upwards on news of the offer or the potential for a "white knight" entrant. While never successful in achieving control, the fund has walked away with a tidy profit in virtually every case, either through the sale of portions of its stake, or through defensive management actions to enhance value such as through increased dividends.

That history is not lost on Steel Partners head Warren Lichtenstein. The normally media-shy investor has spent much of the past two weeks defending the strategic outlook of his fund's bid while seeking to counter his portrayal in the Japanese media, which has in recent weeks highlighted his aggressive manner of investing.

"Many so-called activists force changes at a company and then sell their entire investment to reap short-term gains. This is not Steel Partners' investment style," Lichtenstein said at a June 12 media briefing, according to Business Week.

Japan's courts have twice ruled against the use of pills or the issue of diluting warrants. In 2005, a court barred control and measuring systems manufacturer Nireco from deploying its pill without shareholder approval. However, in its decision, the court noted that pills could be allowed if they were used to defend against greenmailers.

Foreign investors worry that should the court decide in favor of the company, Japanese boards-- which are overwhelmingly made up of insiders--will view the decision as a green light to selectively determine who their shareholders should be. That, analyst say, will have broad implications for Japan's capital markets.

"Japan [would be] going back to the dark ages," one corporate lawyer told the Financial Times."It will really depress the stock market."

Conversely, a ruling in favor of Steel Partners may embolden activist funds to further press for change, a trend evidenced already this year. Between 2004 and 2006, ISS' Governance Research Service tracked just 18 shareholder proposals calling on Japanese companies to boost dividends. This year, foreign activist funds alone--who prior to this proxy season have never before circulated shareholder proposals of any kind at Japanese firms--have submitted nearly half that number.

Meanwhile, non-Japanese investors have raised their holdings in Japanese companies to an all-time high, the Financial Times reports. International investors increased their stake in Japan's stock market to 28 percent in March from just over 26 percent in 2006 and just 4.7 percent in 1990, according to figures released by the Tokyo Stock Exchange and four smaller Japanese exchanges.

The expiration of the Steel Partners tender offer was pushed back from June 28 to Aug. 10 in what analysts say is a bid to give the courts more time to weigh in. The fund also raised its May 18 offer from 1,584 yen per share--an 18.6 percent premium to the May 16 share price--to 1,700 yen per share.

On June 12, 2007, the European Commission announced the formal adoption of the "Directive on the Exercise of Certain Rights of Shareholders in Listed Companies." This new measure not only increases shareholders' access to information but also increases their ability to exercise their rights. According to Internal Market and Services Commissioner Charlie McCreevy, "These new rules will mean that shareholders, no matter where they are located in the EU, can have their say about the way companies are run and can hold management accountable."

Among other noteworthy improvements, the Directive requires minimum notices periods of 21 days for general meetings, mandates disclosure of voting results on company Web sites, and abolishes the old practice of share blocking. Furthermore, it abolishes many of the obstacles preventing shareholders from participating electronically at meetings (including electronic voting). The protection of a shareholder's right to ask questions and the company's obligation to answer them are also set out in the Directive.

The Directive represents a significant step forward for European corporate governance. Member States now have two years to implement the Directive in their national laws.

More information on the Directive and the consultation is available here.

French President Nicolas Sarkozy, acting on a recent campaign pledge, is proposing restrictions on the use of "golden parachutes" and stock option grants for senior executives, according to press reports.

The restrictions, part of a broader economic package that will be submitted to lawmakers in the coming weeks, will likely be passed into law. Sarkozy's center-right Union for Popular Movement party consolidated its power during a first round of parliamentary elections on June 10.

Sarkozy's proposal would effectively ban the use of golden parachutes for departing executives who fail to meet performance requirements. The executive board would set performance criteria, the Financial Times reports, which would then be made public and put to a shareholder vote.

"No performance, no bonus," Sarkozy told the French daily Le Figaro, detailing the fundamental principle underlying the proposed law.

Sarkozy's proposal is meant in part to quell public anger over the roughly $11 million payout awarded to Noel Forgeard, the former co-chief executive of aerospace giant EADS, the European Aeronautic Defence & Space Co. Forgeard stepped down last summer following revelations that Airbus's A380 jetliner would be subject to production delays. Toulouse-based EADS, which owns 80 percent of Airbus, lost roughly one-quarter of its value on the news.

Investors have voiced outrage over golden parachutes and other forms of exit pay elsewhere in Europe this year. In March, the Ethos Foundation called for a vote against Hans-Joerg Rudloff, the compensation committee chairman at Novartis, in light of his support for severance packages for top executives, including CEO Daniel Vasella.

Meanwhile, stock option awards, which have been less contentious than cash-based payouts in France and other continental European markets, also would be reformed under Sarkozy's proposed legislation.

Options would only be available to senior managers at market price and only if the options--or a similar stock-based compensation plan--were offered to all employees, the Financial Times reported. The proposed legislation also would require companies to consult with labor unions on option awards.

This year, as U.S. companies file proxy statements under the new compensation disclosure rules, the perquisites and other extra benefits that top executives enjoy are becoming more apparent to investors.

Before this proxy season, many executive perks were largely obscured, with a few coming to light years later during litigation or government probes. Prominent examples include the $15,000 umbrella stand and other luxury items purchased by Tyco International CEO L. Dennis Kozlowski, the personal aircraft use by former Tyson Foods Chairman Donald J. Tyson and his family, and the retirement perks received by General Electric CEO Jack Welch, which included use of an $11 million Manhattan apartment and a Mercedes. These headline-grabbing benefits helped spur investor demands for better disclosure of perks and other forms of executive compensation.

The new Securities and Exchange Commission rules mandate that companies disclose perks in aggregate of $10,000 (down from the former limit of $50,000) in the summary compensation table. The rules are causing some firms to cut back on perks, while other companies seek to defend these extra benefits by citing retention and security concerns.

Some investor advocates are not persuaded by corporate arguments that perks are still needed to retain top executives.

"Pay should be tied to long-term sustainable corporate performance, so perks can break this pay-for-performance link," Justin Levis, a senior analyst with the Council of Institutional Investors (CII), told Governance Weekly.

Levis said he "has yet to hear a convincing rationale" from companies about why they provide free personal travel on the corporate plane, club dues, home security, and other "extras."

Perks reform, said Michael Garland, director of value strategies for the CtW Investment Group, the investment arm of labor federation Change to Win, is "obviously a reform that the labor funds are highly supportive of."

"In situations where there are egregious perks," Garland told Governance Weekly, "you will see shareholders develop either ... proposals or [requests for] greater accountability of board members."

As companies file their first proxy statements under the new disclosure rules, it's not yet clear whether a significant number of firms are scaling back the perks, supplemental retirement plans, and other benefits that are not provided to regular employees. However, anecdotal evidence suggests that many firms still offer these benefits, and they now are making a greater effort to explain these practices to shareholders.

For instance, Boeing's proxy statement provides a breakdown of CEO James McNerney Jr.'s personal use of the corporate jet, which the company valued at $331,649. That total includes $63,053 for personal travel associated with relocation, $268,396 for general personal travel, and $9,160 for travel to outside board meetings. McNerney serves on two boards aside from Boeing's.

Drugmaker Eli Lilly's proxy specifies that CEO Sidney Taurel only used the company jet for personal travel to and from outside board meetings. "The company does not provide significant perquisites or personal benefits to executive officers, except that the company aircraft is made available for the personal use of Mr. Taurel and [Chief Operating Officer John] Lechleiter, where the committee believes the security and efficiency benefits to the company clearly outweigh the expense," the proxy statement reads.

While Goodyear Tire & Rubber offers top executives home security services, financial planning, tax preparation, country club dues, and annual physical exams, the company's proxy statement said the compensation committee "does not consider these perquisites to be a significant component of executive compensation."

Retention and security are the most-often cited reasons for executive officer perquisites. Morgan Stanley and eBay say in their proxy statements that perquisites (and other benefits such as bonuses and equity awards) are essential to retaining the same quality of executives that lead other firms in their revenue and industry grouping. The companies provide bulleted lists of peer companies with which they must "compete" for top executive talent.

Margaret Whitman, CEO of online auction firm eBay, received more than $1 million in personal travel on the company plane, including nearly $240,000 in reimbursements for taxes (also known as "gross-ups") owed on that travel. The company also notes that it paid finance chief Robert Swan close to $1 million in relocation fees and related tax gross-ups for "costs and expenses related to moving from Texas to the San Francisco Bay Area and the sale of his home." EBay also offers information technology support for executives' home computer systems.

Southern Union's proxy statement notes that it has a "policy that encourages [CEO George] Lindemann and his spouse to use company aircraft for all business and non-business purposes for their personal security and safety." The Houston-based natural gas company reports that Lindemann accrued $609,862 in personal travel on the company jet in 2006, not including $44,393 in tax gross-ups.

United Technologies reported $612,303 in personal airplane use by CEO George David in 2006. Like Southern Union, the United Technologies proxy statement says that the CEO and CFO "use corporate aircraft for personal travel in accordance" with the company's security policy, but no further explanation of the security policy is provided.

Meanwhile, Morgan Stanley CEO John J. Mack incurred $321,848 for personal aircraft use in fiscal 2006 and $407,762 in fiscal 2005, according to a footnote to the company's summary compensation table. At Morgan Stanley, a "board-approved policy directs the Chairman and CEO to use the [c]ompany aircraft when traveling by air."

Chief executives continue to leave office at a high rate, with many departures stemming from pay issues or board disputes, according to new study by consulting firm Booz Allen Hamilton.

Almost one in three CEOs was forced out of office in 2006--compared with one in eight in 1995--Booz Allen Hamilton reported in its sixth annual Global CEO Succession Study. The survey of the world's 2,500 largest companies showed that corporate boards in the past few years have replaced underperforming CEOs at a quicker rate, though the number of performance-related dismissals actually declined slightly in 2006. There is also an increasing focus on grooming internal candidates in the face of mediocre performance by CEOs recruited from outside the firm.

"It's clearly time to say goodbye to the age of the imperial CEO," Steven Wheeler, senior vice president of Booz Allen Hamilton, said in a May 22 press release on the study, which is subtitled, "The Era of The Inclusive Leader."

Wheeler said inclusiveness is a new critical CEO survival skill--and those top executives who do not give board members a voice in the company's growth strategy are in real danger of being forced out. The number of CEOs who lost their jobs because of conflicts with directors rose from 2 percent in 1995 to 11 percent in 2006.

However, the study does suggest that the wave of performance-related turnover--which grew by 318 percent between 1995 and 2006--may be subsiding. Thirty-two percent of CEOs who left office involuntarily in 2006 were forced out because of performance issues or board infighting--a slight decrease from 2005, the authors write.

In fact, the authors write that overall CEO turnover worldwide peaked in 2005. Study data shows that average CEO tenure is beginning to rise again as well, reaching a worldwide average of 7.8 years in 2006, with the Asia-Pacific region having the highest average retention period, 9.5 years.

The one notable exception was the increased rate of departures due to mergers and acquisitions. In 2006, 22 percent of departing CEOs left because of a merger or buyout, compared with 18 percent in 2005. Europe and North America saw the highest rates of turnover, the study says, because of elevated merger activity in both regions.

Study data continues to indicate that outside CEOs with prior experience as a chief executive of a publicly traded company deliver slightly lower returns to shareholders than internally promoted candidates.

The authors also advocate for the separation of the roles of chairman of the board and CEO, saying those companies with a completely independent chair who had not previously been CEO brought the best returns to investors over the study period. U.S. shareholders continue to press for separation of the two roles, though this proxy season has only seen an average of 28.4 percent support for the proposal at 10 meetings where results are known.

Even before the Securities and Exchange Commission's new "e-proxy" rules take effect on July 1, shareholders and companies are increasingly using the Internet to communicate on governance matters.

Online sources like weblogs, video sites, and e-mail campaigns--not to mention company-sponsored Web sites--have emerged in recent years, sparking hope among investors for improved communication. In addition, these new forms of communication have gotten more attention since the SEC announced recently that it was studying the feasibility of "electronic shareholder forums."

Among the notable Internet efforts this season was the California Public Employees' Retirement System's (CalPERS) campaign for proxy access at UnitedHealth Group. The pension fund set up a Web site, www.healunitedhealthgroup.com, to accompany a letter sent to shareowners before the company's May 29 annual meeting.

CalPERS urged investors to vote for a proposal that calls on the company to amend its bylaws to permit investors who own at least a 3 percent stake for over two years to nominate up to two directors to appear on the management proxy statement. That proposal received 45.3 percent support, according to a company regulatory filing.

In addition, Yahoo! shareholder Eric Jackson is using a weblog (also known as a "blog") and streaming video to generate retail investor support for a "vote no" campaign against seven directors in advance of the company's June 12 meeting.

Earlier this season, ExxonMobil provided an online forum for shareholders to ask questions on proxy materials before the company's May 30 meeting. The company set a cut-off date of May 15 for all questions.

One of the primary goals of the new SEC rules is to reduce the cost to companies that mail thousands of hard-copy proxy statements--a package which, as SEC Chairman Christopher Cox has noted with chagrin, has gotten bigger with the advent of new compensation disclosure standards.

The new proxy rules stipulate that a company may--but is not required to--send proxy materials to investors via a "notice and access" model, meaning that the default method of proxy delivery will be an e-mailed notice of the annual meeting with Internet-based links to proxy materials.

The company can then send a paper proxy card 10 days or more after the release of the original notice, and shareholders are free to "opt out" of electronic delivery in favor of hard-copy materials.

In its announcement of the new rules in December, the SEC explicitly barred companies from transitioning to the predominantly electronic format until after the July 1 effective date.

The U.S. Securities and Exchange Commission says it plans to propose changes to
the proxy rules this summer, and three panel discussions this month suggest a wide range of options are on the table. An SEC proposal to create a secured online forum for shareholders to engage more frequently with companies and each other on proposals that are now addressed through the proxy process seemed to be the only item that stirred a common response among the panels' participants. Panelists from academia, state judiciaries, shareholder activism, and the corporate sphere mostly agreed that the chat room was a bad idea, although for different reasons.

Control enhancing mechanisms (CEMs) are common in Europe and are not well perceived by investors. There is a variety of national practices regarding CEMs, but investor opinions converge regarding their non-desirability. This observation stems from a study on the proportionality between ownership and control in EU listed companies that was just handed in to the European Commission by ISS and its partners, Shearman & Sterling LLP and the European Corporate Governance Institute (ECGI).

Some facts in the Study, which are likely to get attention in the coming months are:

* Investors say they are not in favor of CEMs. This influences their investment decisions. 80% of investors expect a discount for companies with CEMs. For most investors, this discount should range between 10% and 30% of market price.

* While all countries allow CEMs from a legal point of view, not all companies use them as much. Of all the European sample analyzed, 56% of companies feature no CEM.

* The countries with the highest proportion of companies featuring at least one CEM are France, Sweden, Spain, Hungary and Belgium, which all have a majority of companies featuring CEMs.

* Recently listed companies have less CEMs than large companies. This means less occurrences of CEMs but also less combinations of CEMs

* The academic review shows that academic research on CEMs is non-conclusive at this date. Any action taken by the commission will have to weigh the expected benefits of regulating these mechanisms against the perceived costs of unexpected consequences.

For more information on the content of the Study, please visit here.