Shareholder activist proponents are cheering the Securities and Exchange Commission's reinterpretation of its 2005 Legal Bulletin 14C, which tried to define when companies could omit environmental and social policy resolutions as "ordinary business" issues because they involved an internal assessment of business risk.

The SEC's application of this bulletin has led to some controversial omission of proposals, and a coalition of more than 60 activist investors petitioned the SEC for a change in the policy last December. Since then, Mary Schapiro has taken office as commission chair, and Meredith Cross has become director of the Corporate Finance Division, which rules on corporate no-action requests to exclude shareholder proposals.

The revised policy is part of Staff Legal Bulletin 14E, which was issued earlier today. The 2005 bulletin concluded that resolutions could be omitted under SEC Rule 14a-8 (i)(7) as ordinary business matters, not suitable for shareholder consideration, if they involve "an internal assessment of the risks or liabilities that the company faces as a result of its operations that may adversely affect the environment or the public's health." Among the no-action decisions that sprang from this policy was a 2008 judgment that the New York City pension funds' resolution on global warming, which an earlier generation of SEC staffers had help the city to draft in order to avoid omission, now fell into the excludable risk assessment category. In protesting the 2005 bulletin in their December letter, the shareholder activists argued that it had "excluded vital questions" about the financial impacts of corporate actions on society.

The new bulletin acknowledges that the staff has "become increasingly cognizant that the adequacy of risk management and oversight can have major consequences for a company and its shareholders." Henceforth, the bulletin says, in deciding when a company can omit a resolution, rather than focusing on whether a resolution relates to an evaluation of risk, the staff will instead focus on the underlying subject matter to which the risk pertains. The SEC bulletin doesn't give specific examples of where the policy may change, except to recognize that board oversight of risk is an issue that may "raise policy issues so significant that it would be appropriate for a shareholder vote."

Stu Dalheim, director of shareholder advocacy at the Calvert Group, hailed the new bulletin as "a significant validation of shareowner rights."

"As evidence continues to mount that issues such as climate change and water scarcity have financial materiality for business, it is critical that investors are able to use shareholder proposals to directly address these risks," Dalheim told RiskMetrics Group.

Tim Smith, a senior vice president at Walden Asset Management, also praised the new bulletin. "The SEC's new guidance is a welcome reversal of a long-time position, which eliminated the ability of shareowners to include any reference to risk in shareholder resolutions. Now investors are free to craft language for resolutions, including the obvious point that an issue like climate change may create financial or reputational risk for shareowners," Smith said. "This opens the door for frank and candid discussion and votes on how various issues affect shareholder value."

Likewise, Trillium Asset Management said it "welcomes the expanded opportunities provided by this policy reversal to advocate for greater corporate transparency and responsible corporate behavior."

Noting the SEC's proposed proxy access rule and disclosure standards, Trillium's Jonas Kron said the new bulletin "is further confirmation that the SEC is taking positive steps to bring the proxy rules in line with its mission to protect investors; maintain fair, orderly, and efficient markets; and serve the public good."

"What is distinct about [Staff Bulletin] 14E is that it is the first final step taken by the SEC that will change what the proxy will look like this coming year," Kron said.

CEO Succession Planning
In the new bulletin, the SEC staff also revised its position on investor proposals seeking reports on CEO succession planning. During the last two proxy seasons, the staff allowed companies to omit the resolutions on ordinary business grounds because they related to the termination, hiring, or promotion of employees. In the new guidance, the staff acknowledged "that CEO succession planning raises a significant policy issue regarding the governance of the corporation that transcends the day-to-day business matter of managing the workforce."

The staff also observed that "recent events have underscored the importance of this board function to the governance of the corporation." The bulletin didn't mention any specific examples, but activists have renewed calls for succession planning reports since Bank of America CEO Kenneth Lewis's surprise announcement in late September than he would step down. The Laborers' International Union of America has submitted a succession planning proposal for Whole Foods Market's 2010 meeting and plans to file at other companies.

Eric Shostal and Ted Allen contributed to this article.

RiskMetrics Group today announced the opening of its annual comment period for its 2010 proxy voting policies. The comment period, part of RiskMetrics' policy development process, offers institutional investors, corporate issuers, and industry constituents the opportunity to provide feedback on RiskMetrics' draft policies.

The comment period runs through November 11 and covers updates to RiskMetrics' proxy voting policy in markets worldwide. Topics covered include takeover defenses, board and director independence, executive compensation, and share purchase authorities.

RiskMetrics gathers extensive input each year from clients and market constituents through a policy survey, issue-oriented roundtables and a unique open comment period to ensure its voting policies comprise a broad range of views. This year's policy survey had over 700 respondents, weighing in on issues ranging from management say-on-pay to sustainability and corporate responsibility. The full results from the survey are posted to RiskMetrics' Policy Gateway.

RiskMetrics Group plans to release its final 2010 U.S. and International policy updates on November 20 and its Global Policy Summary and Concise Guidelines in late-December. To participate in RiskMetrics' comment period, please visit here. To learn more about RiskMetrics' policy formulation process, please visit here.

RiskMetrics has published a summary of its 2009 Postseason Report, which has extensive analysis of investor and issuer responses to the key corporate governance issues from this season. To access the report, please visit here.

RiskMetrics will also offer commentary on the report through its upcoming webcast, 2009 Postseason Review, which will be held on Tuesday, October 20 at 1 p.m. Eastern. Pat McGurn, Ted Allen, Valerie Ho and Sean Quinn will examine trends for the U.S. proxy season 2009 and what's ahead for 2010. To register for the webcast, please visit here.

Also, the next step in our transparent policy formulation process is our annual open comment period, which provides all market participants an opportunity to comment on proposed updates to our benchmark proxy voting policies. The comment period officially opens on October 21. Stay tuned for more details.

The Securities and Exchange Commission plans to delay a final vote on proxy access until 2010, Bloomberg News reported today.

The SEC was planning take a final vote on its proposed proxy access rule in November, but the commission wanted to give its staff more time to review more than 500 comments that have been submitted by companies, investors, and academics, according to Bloomberg News.

Investor advocates weren't discouraged by this news, agreeing that the SEC needs to be careful while crafting a rule on the controversial issue of proxy access. The commission previously tried to address the issue in 2007 and 2003.

"We agree that the commission should take the time it needs to deliberate so the strongest possible rule can be created that stands up to the test of time and any immediate legal challenges," said Richard Ferlauto, director of corporate governance at the American Federation of State, County, and Municipal Employees, and a long-time advocate for proxy access.

"Not having proxy access in place in time for the start of the 2010 proxy season is disappointing, but shareowners have waited years," Amy Borrus, deputy director of the Council of Institutional Investors, told Bloomberg News. "A few more months won't be the end of the world."

David Lynn, a former SEC lawyer who is a partner with the law firm of Morrison & Foerster, said the commission should take its time on proxy access. "The last thing we need is a rush job on this," Lynn said.

The SEC's two-part access rule includes a new Rule 14a-11, which would set minimum marketwide standards to permit investor groups to nominate directors to appear on management proxy statements. The draft rule would impose a sliding ownership threshold (of 1, 3, or 5 percent) based on market capitalization (or net assets in the case of investment companies). The draft rule calls for a minimum holding period of one year, but SEC chair Mary Schapiro indicated last month that the commission may extend the required holding period, a change that labor investors and some companies have called for.

Corporate advocates and the SEC's two Republican commissioners oppose the proposed Rule 14a-11, arguing that companies and investors should be able to design their own provisions with stricter access rules. The SEC also proposes to amend Rule 14a-8(i)(8) to permit investors to resume filing access bylaw proposals at companies, provided that the resolutions don't conflict with the draft Rule 14a-11 or applicable state laws.

Corporate advocates have argued that any marketwide rule should be delayed until 2011 to give companies more time to cope with other regulatory developments, including a New York Stock Exchange rule change that would bar broker votes from uncontested board elections and a proposed set of SEC disclosure rules.

It appears likely that the Rule 14a-11 portion of the access rule-making would face a corporate legal challenge. James Cox, a securities law professor at Duke University, said he believes that a marketwide access mandate would be "highly vulnerable" to a lawsuit that asserts such a rule is beyond the agency's authority to regulate corporate proxy disclosures. Senator Charles Schumer has introduced legislation, which Schapiro has welcomed, that would confirm that the SEC has the authority to issue a director election rule, but his bill's chances for passage are uncertain at this point.

While most directors at U.S. companies continue to receive overwhelming support each year, there was a significant increase in the number of board members who failed to win majority support in uncontested elections during the 2009 proxy season.

So far this year, 93 directors at 50 U.S. companies have received majority dissent, almost three times the 32 board members at 17 firms who failed to earn majority support in all of 2008, according to RiskMetrics Group data as of Sept. 23, which includes vote results on 12,052 directors at Russell 3,000 and S&P 500 firms. Among S&P 500 index firms, 12 directors at six companies received majority opposition this year, up from five directors at two firms in 2008, according to RiskMetrics data.

Despite this surge in majority withhold votes, it does not appear that any of the 93 directors have stepped down as a result of investor dissent. None were legally required to do so; as of the end of August, all 50 firms had plurality voting standards for director elections, according to RiskMetrics data. Two companies had resignation policies that were triggered, but the boards decided to retain the directors who failed to earn majority support.

During the 2009 season, there also were more votes cast against board members generally. The average dissent level against U.S. directors climbed to 7.2 percent, up from 5.1 percent in 2008 and 4.9 percent in 2007, according to RiskMetrics data. Among S&P 500 firms, directors at 93 companies had at least 10 percent dissent, up from 82 in 2008, 64 in 2007, and 57 in 2006.

While investors may have different reasons for opposing directors, it appears that shareholder objections to tax gross-up payments and other compensation practices played a greater role in driving up withhold votes across the S&P 500 index this year. Pay concerns contributed to more than 10 percent opposition against directors at 50 firms this year, up from 24 in 2008, 18 in 2007, and six in 2006. This upward trend suggests that more investors are acting on the additional compensation information that they have been getting since new disclosure rules took effect before the 2007 proxy season.

Compensation committee members at Assurant and Southwestern Energy received majority withhold votes this year, apparently because of the companies' arrangements to reimburse executives for their taxes. Pay panel members also faced more than 30 percent dissent this year at Anadarko Petroleum, Lorillard, Apartment Investment & Management, Equifax, Fidelity National Information Services, Legg Mason, Omnicom Group, Peabody Energy, Pepco Holdings, Sandisk, Textron, and XTO Energy. Tax gross-ups were a contributing factor at Sandisk and Equifax, and helped fuel more than 20 percent opposition at AT&T, Agilent Technologies, AK Steel, CIT Group, and Eli Lilly.

At Nvidia, a board member received 41.9 percent dissent, and two fellow directors had more than 34 percent opposition, after the company undertook a stock-option exchange program without seeking shareholder consent. Likewise, Google's option exchange without investor consent contributed to an 11 percent vote against two directors, a notable display of dissent at a firm where officers and directors have a 70.6 percent voting stake.

Another important factor that contributed to high withhold votes at S&P 500 firms was the failure to implement a majority-supported shareholder resolution.

Four FirstEnergy directors received more than 50 percent opposition at the company's annual meeting in May after failing to implement three majority-backed shareholder proposals. Seven other directors at the Ohio-based utility firm received more than 48 percent dissent. The significant display of investor dissent follows FirstEnergy's failure to adopt a trio of proposals seeking to eliminate the company's supermajority voting provisions, reduce the threshold for calling special meetings, and adopt a majority vote standard for director elections. All three resolutions won more than 67 percent support in 2008. In a quarterly filing, FirstEnergy said the board would "further review" the three proposals.

At Pulte Homes, three directors received majority opposition after the board failed to put a "poison pill" takeover defense to an investor vote and act on a majority-supported declassification proposal. The company's director resignation policy was triggered, but the board decided to retain the three board members. Labor investors have called on Pulte to reconsider that decision. Since its annual meeting, the company has said it would put its pill to a vote next year and would recommend declassification after completing a merger with Centex. One of the three Pulte directors has since left the board as a result of the merger, which was approved in August.

At Southwest Airlines, an outside director who is affiliated with management and sits on the board's nominating committee received a 53.7 percent withhold vote after the company did not implement a proposal seeking majority voting in board elections that earned 68 percent support in 2008. Ignored shareholder proposals also contributed to more than 40 percent opposition at Boston Properties, Vornado Realty, and Stanley Works.

At Cameron International, two directors received more than 47 percent dissent after the company failed to respond to a majority withhold vote in 2008 that apparently was inspired by a 10-year extension of the company's poison pill without investor approval. Four Convergys board members had more than 40 percent opposition after the board extended a pill without seeking shareholder approval. Likewise, three directors at Abercrombie & Fitch received more than 42 percent after the company renewed its pill without shareholder consent.

There were other reasons that contributed to high withhold votes. An outside director at Massey Energy who sits on more than six boards received 58 percent opposition. Affiliated outsider directors who serve on key board committees (compensation, audit, or governance/nominating) received more than 40 percent withhold votes at Consol Energy, Pepco, and Vornado.

Outside the S&P 500 index, directors at 44 smaller Russell 3,000 companies also received majority withhold votes this year. For at least 10 of the companies, the majority opposition followed a failure to seek shareholder approval for a poison pill. Affiliated outsiders serving on key board committees contributed to investor dissent at more than a half-dozen firms. At vitamin maker NBTY, a compensation committee member had majority opposition that apparently was a result of the company's tax gross-up arrangements. At Advanced Analogic, the dissent appeared to stem from an option-exchange program that was not submitted for investor approval.

At discount retailer Dollar Tree, a director received majority opposition after the company failed to implement a declassification proposal that earned 67 percent support from the company's outstanding shares in 2008. Dollar Tree has a director resignation policy that was triggered. On Sept. 3, the company reported that the resignation had not been accepted, and that the board would recommend that shareholders approve an article amendment in 2010 to declassify the board.