A shareholder resolution seeking an annual advisory vote on compensation received 51 percent support at XTO Energy, proponents said. The vote is the 16th majority vote for a "say on pay" proposal so far this season, up from 11 during all of 2008, according to RiskMetrics Group data.

The proposal at Fort Worth, Texas-based XTO was filed by TIAA-CREF's College Retirement Equity Fund. Other recent "say on pay" results include 53.5 percent support at Pulte Homes, 49.6 percent at Frontier Communications, 47.5 percent at Colgate-Palmolive, and 46.5 percent at Allstate, according to proponents. A pay vote proposal also received 47 percent support at Altria, up from 37.1 percent in 2008, proponents said. The worst showing so far was a 12.6 percent vote at Ford Motor; the automaker has a dual-class equity structure that gives the Ford family 40 percent of the voting power.

Overall, pay vote proposals have averaged 46.6 percent support this year at the 44 meetings where preliminary or final results are available, according to RiskMetrics data. These results are based on the votes cast "for" and "against" and don't include abstentions.

Also at XTO's May 19 annual meeting, there was 49 percent support for a proposal that seeks shareholder approval of future executive death benefits, according to the proponent, the Amalgamated Bank's LongView fund. According to the company's proxy statement, the heirs of CEO Bob Simpson are slated to receive a $144 million package, but XTO has negotiated a new employment agreement that would reduce those benefits by $60 million after June 1.

On May 20, a divided U.S. Securities and Exchange Commission proposed a proxy access rule that would require listed companies and registered investment firms to allow investors to nominate board candidates to appear on management proxy statements.

By a 3-2 margin, SEC Chair Mary Schapiro and the commission's two Democrats voted for the access proposal, which sets ownership requirements on a sliding scale of 1 to 5 percent, based on market capitalization. This marketwide "direct access" rule, along with a concurrent proposal to lift the SEC ban on shareholder access resolutions, is a major reversal for the commission, which voted in 2007 to prohibit investor access proposals.

"I believe that the most effective means of providing accountability--in a way that is both cost effective and timely--is to ensure that shareholders have a meaningful opportunity to effectuate the rights that they already have under state law to nominate directors," Schapiro said at the meeting. "The time has come to resolve this debate," she said, recalling the access rules proposed in 2003 and 2007 and the numerous SEC roundtables held on proxy issues.

Activist investors hailed the proposed Rule 14a-11, which will be subject to a 60-day public comment period after it is published in the Federal Register. SEC officials said they hope to get a final rule approved before the 2010 proxy season, although the measure may be delayed by a potential court challenge.

"This is a great day for shareowners," Ann Yerger, executive director of the Council of Institutional Investors, said in a press release. "Access to the proxy would invigorate board elections and make boards more responsive to shareowners, more thoughtful about whom they nominate to serve as directors, and more vigilant in their oversight of companies."

Richard Ferlauto, director of corporate governance for the American Federation of State, County, and Municipal Employees (AFSCME), said the rule is "a very significant step forward for investor rights."

The SEC's two Republican commissioners, Kathleen Casey and Troy Paredes, both voted against the access proposal. They expressed concern that the proposed rule would override shareholder-approved or board-approved access bylaws that set higher ownership thresholds or longer ownership periods.

David Hirschmann of the U.S. Chamber of Commerce said the access rule is "a step in the wrong direction." The SEC proposal is "a gift for activist investors and will weaken corporate governance and harm investors," Hirschmann said in a press release.

The draft rule would impose a sliding ownership threshold based on market capitalization (or net assets in the case of investment companies) that reflects existing SEC classifications for companies. For "large accelerated filers," or those with more than $700 million in worldwide market value, the minimum ownership percentage would be 1 percent of the voting securities. At "accelerated filers" (firms with a worldwide market value of at least $75 million but less than $700 million), the threshold would be 3 percent. At "non-accelerated filers" (companies with less than $75 million in market value), the threshold would be 5 percent. Investors would be allowed to aggregate their holdings to meet these ownership requirements.

Notably, the draft rule would impose a one-year minimum ownership period, which is less than the two-year requirement that has been backed by AFSCME and the Council of Institutional Investors and can be found in existing corporate bylaws (e.g., at Comverse Technology).

The draft rule would permit investors to nominate candidates for up to 25 percent of the board. In the event that the nominees from multiple investor groups exceeded this cap, the first filer would have priority, SEC officials said.

The SEC proposal also would revise Rule 14a-8(i)(8)'s "election" exclusion and restore the ability of shareholders to file resolutions to amend a corporation's governing documents to address nomination procedures or disclosure provisions, provided that the proposal does not conflict with the commission's proposed Rule 14a-11. Unlike the access rules drafted in 2003 and 2007, the latest SEC proposal would impose no additional ownership hurdles beyond those required to file regular shareholder resolutions (i.e., holding a $2,000 stake for at least one year before submitting a proposal.)

Governance experts say that the Rule 14a-8(i)(8) amendment appears to be a fall-back provision in the event that a court delays or invalidates the direct access portion of the SEC's proposal. A legal challenge from access opponents presumably would be based on the argument that the SEC's mandate to regulate corporate proxy disclosures does not give it the authority to regulate director elections governed by state laws. Any such lawsuit would be heard by the U.S. Court of Appeals for the D.C. Circuit, which invalidated SEC rules on mutual fund independence and hedge fund registration earlier this decade.

On May 19, Senator Charles Schumer of New York introduced sweeping legislation that, if enacted, would significantly change how corporate boards are elected and operated. The bill, the "Shareholder Bill of Rights Act of 2009," addresses virtually all of the major reforms sought by activist investors during the past decade, including proxy access, advisory votes on compensation, and independent board chairs.

While the Business Roundtable and other corporate advocates are mobilizing against the bill, investor advocates praised its provisions. The Council of Institutional Investors, the California Public Employees' Retirement System, and the American Federation of State, County, and Municipal Employees quickly endorsed the bill.

"We believe that stronger investor oversight is critically needed to restore trust and confidence in the integrity of the U.S. capital markets," Joe Dear, CalPERS' chief investment officer, said in a letter to Schumer. "Your legislation will enhance our ability to be active and prudent shareowners."

Advisory Votes: The legislation specifically requires issuers to hold a separate advisory vote at every shareholder meeting where executive compensation disclosure is required. This requirement would apply to proxy statements issued more than one year after the effective date of the legislation. (In other words, it appears that pay votes would not become mandatory across the U.S. market until the 2011 proxy season at the earliest.) The bill makes clear that the votes are non-binding, would not overrule board decisions, and would not "create or imply any change in the current fiduciary duties" of boards. Anticipating potential no-action challenges from issuers, the bill states that the advisory vote provision should not be construed to restrict or limit the ability of shareholders file compensation-related proposals. The bill also calls for a separate vote on "golden parachute" compensation arrangements to accompany shareholder votes on mergers, acquisitions, or sales of substantially all of an issuer's assets.

Proxy Access: The bill directs the Securities and Exchange Commission to establish rules to allow investors to nominate directors to appear on issuer proxy statements. While this provision doesn't specifically address potential conflicts with state law, this language should help the SEC fend off a legal challenge from corporate advocates who assert that the agency lacks the authority to adopt an access rule. The bill sets a floor for the minimum ownership threshold (a 1 percent stake for at least two years prior to the next annual meeting) that the SEC may impose, but does not establish a ceiling for such requirements. In 2007, investors complained that a proposed 5 percent threshold for filing access bylaw proposals was too high. While the law does not set a time period for the SEC to act on proxy access, the commission plans to propose several alternative rules at an open meeting today.

Other Governance Standards: Most (if not all) companies would be required to appoint independent board chairs, eliminate staggered board terms, establish new risk committees of independent directors, and adopt a majority vote standard in uncontested elections. Given that majority voting rules can be used to thwart dissident candidates, the law specifies that plurality voting shall apply in contested elections where the number of candidates exceeds the number of directors to be elected.

The bill directs the SEC to act within a year to require the national exchanges to make these four mandates part of their listing standards. However, Schumer's legislation authorizes the SEC to exempt companies based on size, market capitalization, public float, or the number of shareholders of record. The SEC has granted various extensions to smaller issuers to comply with the auditor attestation requirements of Sarbanes-Oxley, so it's possible that the SEC may exempt small firms from all (or some) of these governance standards or delay these requirements. The bill directs the SEC to allow issuers an opportunity to cure governance defects before being delisted, but no time period is specified.

These governance provisions, if approved, would have a significant impact on U.S. companies. While a majority of S&P 500 firms now have majority voting and annual elections for all directors, most do not have independent board chairs. Majority voting and declassified boards are less common at small issuers. Separate risk committees are virtually unheard of at U.S. companies, although the audit committees at many companies oversee risk issues, and some boards have compliance panels.

In sum, this legislation would go significantly farther in changing corporate governance practices and expanding shareholder rights than even the Sarbanes-Oxley Act, which primarily targeted accounting and financial reporting practices.

In another high-profile protest over executive pay, Royal Dutch Shell shareholders rejected the company's remuneration report at today's annual meeting by a 59.4 percent to a 40.6 percent margin.

At Shell, it appears that investors objected to the remuneration committee's decision to approve the vesting of long-term incentive plan awards despite the failure of the Anglo-Dutch oil company to meet pre-set performance targets.

Co-operative Asset Management and Standard Life Investments were among the institutional investors that publicly opposed Shell's pay practices, according to The Times of London. The Association of British Insurers issued an "amber top" alert to its members before the meeting, according to the Times.

"We are taking this very seriously and we will be meeting with shareholders to take the right decisions," Shell chairman Jorma Ollila said after the vote, according to news reports. "We have already introduced additional performance measures for future awards reflecting on comments from shareholders."

Shell is the fifth U.K.-listed company where remuneration reports have failed to win majority support this year. In recent weeks, pay reports at Amec, an engineering firm, and mortgage lender Provident Financial failed to earn majority support. Earlier this year, pay reports were rejected at the Royal Bank of Scotland and homebuilder Bellway. There also was significant dissent against remuneration reports at oil giant BP, mining firm Xstrata, and Rightmove, which publishes online real estate listings, the Times reported.

The American Federation of State, County, and Municipal Employees (AFSCME) is calling for the resignation of two Citigroup directors who apparently were reelected with the help of broker votes.

In a 10-Q filing on May 11, the company reported that director C. Michael Armstrong received 2.652 billion "for" votes and 1.116 billion "against" votes (or 29.6 percent opposition) at the company's April 21 annual meeting, while director John M. Deutch received 2.763 billion "for" votes and 1.083 billion "against" votes (28.2 percent dissent).

However, the labor union calculates that Armstrong and Deutch would have received only 920 million and 1.031 billion votes, respectively, if the 1.732 billion uninstructed "broker" votes had been excluded from their tallies. On this basis, AFSCME estimates that Armstrong actually received 54.8 percent opposition while Deutch had 51.2 percent dissent. Citigroup, which has a majority threshold voting standard in its bylaws, has reported that all 14 management nominees were elected.

"We will be calling for the resignation of Armstrong and Deutch based on the repudiation by active shareholders," Richard Ferlauto, AFSCME's director of corporate governance, told RiskMetrics.

In response, Shelley J. Dropkin, Citigroup's general counsel for corporate governance, noted that "all of our directors received a significant majority of votes cast." "It would undermine the principle of majority rule for a director who receives 70 percent of the vote to resign because 30 percent voted against him," she told RiskMetrics.

Armstrong and Deutch are among six current and former members of Citi's audit committee who were targeted by an AFSCME "vote no" campaign. The union fund complained that the audit panel members "missed key warning signs" and failed to "understand the risks the company faced as its exposure to subprime mortgages and derivatives increased beyond prudent levels." The Florida State Board of Administration, Trillium Asset Management, and Domini Social Funds were among the institutional investors who opposed Armstrong and Deutch, according to ProxyDemocracy.org.

The vote at New York-based Citigroup also is notable because there were significantly more broker votes this year. The 1.732 billion uninstructed votes accounted for about 43 percent of the 4 billion votes cast this year. At the 2008 meeting, there were 1.051 billion broker votes at Citigroup, or 23.7 percent of the total cast. From 2004 to 2007, the broker vote percentages ranged from 19 percent to 19.75 percent, according to the company's filings. It's unclear what might have caused this year's spike in broker votes; this increase may be explained by the investors who shorted their Citi shares (and thus couldn't vote them) in advance of the conversion of preferred stock held by the U.S. government and foreign sovereign funds.

The Securities and Exchange Commission plans to consider proposals to allow shareholders to nominate board candidates to appear on management proxy statements when the commission meets on May 20.

The meeting will start at 10 a.m. and will be held at the SEC's headquarters in Washington.

The details have not been released, but the commission likely will propose several access alternatives. SEC officials have said they are looking at whether to have a sliding scale (based on company size) for the minimum economic stake required to nominate board candidates; that percentage would be smaller at large-cap firms.

"We want to ensure that any procedural requirements for access are rational–and not a means to thwart effective investor participation," SEC chair Mary Schapiro said during a speech to investors in early April.

The SEC has been grappling with the thorny issue of proxy access for decades. The commission proposed a market-wide rule in 2003 that called for a two-step process for shareholders to obtain access, but then abandoned that proposal in 2005 amid opposition from companies and Bush administration officials. In 2007, the SEC proposed a 5 percent ownership requirement (and various disclosure mandates) for shareholders to file bylaw proposals to establish access procedures. Investor advocates complained that the ownership and disclosure standards were too rigorous, while many companies opposed the idea of access altogether. A divided commission ultimately adopted a rule to bar investors from filing access proposals.

RiskMetrics Group will hold a special governance forum webcast on Thursday, May 14 at 1:15 p.m. EDT on the proxy contest between Target Corporation and Pershing Square Capital Management. Representatives and board nominees from both Target Corporation and Pershing Square Capital Management will each make the case for their respective director slates.

Target believes its slate of four incumbent nominees is more likely to create long-term shareholder value. However, Pershing Square claims Target's board lacks retail, real estate and credit card expertise, and a shareholder voice. Consequently, Pershing Square is sponsoring a slate of five director nominees, four of whom are independent. Target's annual meeting is May 28.

For Target, the following executives will present: Gregg Steinhafel, Chairman and CEO; Douglas A. Scovanner, Chief Financial Officer; and Stephen Sangar, Director. Pershing Square will be represented by the firm's founder, William Ackman, and Pershing Square's board nominees, Michael Ashner, Ronald Gilson, and Richard Vague. Chris Young, RiskMetrics' Head of M&A Research, will moderate the forum.

To provide both sides with ample opportunity to speak and field questions from the audience, this webcast will run for 90 minutes, from 1:15 p.m. through 2:45 p.m. EDT. To register for this webcast, please visit here.

A "say on pay" shareholder proposal received 59 percent support at CVS Caremark on May 6, according to proponents. The majority vote at the Rhode Island-based pharmacy chain is the 11th so far at a U.S. company this year for an investor resolution seeking an annual advisory vote on compensation, according to RiskMetrics Group data.

A "say on pay" proposal also earned 50.6 percent support at Waddell & Reed Financial, a Kansas-based investment firm, in early April. There have been near majority votes recently at EMC (49.5 percent), Windstream (49.1 percent), and Sempra Energy (49 percent).

"Say on pay" proposals have matched the 11 majority votes they received during all of 2008. This year's resolutions have averaged 46.8 percent support at 31 companies where preliminary or final results are available, up from 42.1 percent in 2008, according to RiskMetrics data. (Editor's note: these vote results are based on the votes cast "for" and "against" and don't include abstentions.)

Proponents, which include the American Federation of State, County, and Municipal Employees (AFSCME), Walden Asset Management, religious groups, and individual investors, have hailed the better showing by "say on pay" resolutions this season and expressed hope that the vote results will spur Congress to mandate advisory votes at all U.S. companies. Pay votes already are required at the several hundred financial firms that received assistance from the U.S. government's Troubled Asset Relief Program.

"Shareowners are angry, and we are starting to have an impact," AFSCME President Gerald W. McEntee said in a May 4 press release. "These exceptional votes are sending a clear message that shareholders need to be heard on executive pay."

The best showing so far this season was 62 percent support for a shareholder proposal at Hain Celestial; the lowest were 30 percent votes at Eli Lilly and Burlington Northern Santa Fe, according to RiskMetrics data. The two votes appear to reflect the firms' ownership mix. At Lilly, a family endowment holds an 11.9 percent stake; at Burlington Northern, Berkshire Hathaway owns a 22.6 percent stake.

In the coming weeks, "say on pay" proposals are scheduled for a vote at Chevron, ConocoPhillips, Exxon Mobil, Home Depot, McDonald's, Qwest Communications, Raytheon, Target, UnitedHealth, and Yum! Brands. Overall, about 80 resolutions likely will go to a vote this year.

Legendary investor and good-governance advocate Robert A.G. Monks sat down with RiskMetrics Group's Governance Institute to discuss his campaign to install a separate chair at Exxon, and to detail his views on key issues now shaping the corporate governance landscape.

While the focus of the interview centered on his campaign at Exxon, Monks spoke about a potential shortcoming in Sen. Charles Schumer's proposed "Shareholder Bill of Rights," changes at the Department of Labor that may bode well for investors, and calls to reincorporate in North Dakota, among other issues. An excerpt from the interview is below.

RiskMetrics: You've noted on a number of occasions that the board members of Exxon have failed to meet with you. What would you say, were they here now?

Monks: I would want to say to the directors of Exxon that I understand the social pressures they are under to simply get along and to go along, but that it is critical for them to take a wider look at what's happened to, say, British Petroleum. What we had there was arguably the most applauded executive, certainly in England and maybe in Europe, in Lord Browne, and then all of sudden we had the Texas City disaster, we had Alaska, we had commodity trading problems, and it turned out that BP had done an appalling job of integrating their American acquisitions. But they had an independent chairman, Lord Sutherland, a tough Irishman, who came in there and kicked out Browne. Four years earlier, Royal Dutch Shell, the other of the big three; somebody there made a mistake and got their thumbs wrong, and said they had 30 percent more reserves than they really had. What happened? An independent chairman came in and pushed heads together and it really worked. I think we've also seen in these finance company problems here in America that the problem of having a level of accountability cannot be removed from one of the causes of the difficulty. So we need to get that culture of having a monitoring capability that's real in companies.

Exxon officials declined to participate in a similar Q&A, opting instead to point those interested in learning more about the energy giant's views to the company's 2009 proxy statement and public Web site.

The full interview is available on Governance Exchange – an online community exclusively for board directors, corporate executives, and institutional investors. Governance Exchange provides an innovative, secure and high-quality online environment to facilitate constructive dialogue on corporate governance. For more information on Governance Exchange, please click here.