Insight

[Ed. Note: In the March 5th issue of Risk & Governance Weekly, RiskMetrics analyst Carolyn Mathiasen surveyed this season’s environment-related proxy proposals. While much of the information in that report is available only to RiskMetrics clients, Carolyn and R&GW Editor Ted Allen graciously agreed to share an edited version with ESG Insight readers. Learn more about the 2010 proxy season at the Proxy Season Resource Center.]

Environmental questions are receiving a lot of attention from shareholders during the spring US proxy season, including 39 resolutions about global climate change. Other prominent shareholder concerns include the impact of hydraulic fracturing, a method of extracting natural gas that may contaminate major US aquifers; the toxicity of common consumer goods; and the quality of corporate reporting on environmental, social and governance (ESG) issues.

Investors should note that the SEC has been generally supportive of 2010 resolutions on these ESG topics, which was not always the case in years past. Also notable is that some companies are resisting an AFL-CIO climate-related resolution because, they argue, it is too broad in its demands.

The SEC has ruled that Bank of America and JPMorgan Chase may omit the American Federation of State, County, and Municipal Employees’ new “bonus banking plus” proposal, which seeks changes in how the banks compensate their 100 most highly paid employees. 

Responsible Investor has reported that Norway’s sovereign wealth fund is stepping up its engagement with the companies whose shares it owns. In some cases, Norges Bank’s Global Pension Fund will opt for “active ownership” of a company that violates its ethical norms, rather than avoiding the stock entirely. Engagement “might reduce the risk of continued violations of ethical norms better than exclusion, which leaves the fund with no influence once shares are sold,” wrote RI’s Hugh Wheelan.

On Tuesday, March 9 at 1 p.m. ET, RiskMetrics will hold a 2010 Proxy Season Preview Webcast. Please join us as we preview the key 2010 corporate governance issues for season, including compensation, say-on-pay, vote-no campaigns, independent chairs, new board disclosures, and environmental and social issues. We will also discuss the outlook for shareholder proposals this year.

Seven more large-cap firms have agreed to hold advisory votes on executive compensation, according to “say on pay” proponents.  

“It’s been a natural evolutionary process for companies to embrace a relatively new idea like ‘say on pay.’ But now we are reaching the tipping point,” Timothy Smith, senior vice president at Walden, said in a press release this week. “Less than a year ago, only a handful of companies had adopted the vote. Now more than 50 companies have agreed to do so, with more stating a higher comfort level with the concept.”

The staff of the Securities and Exchange Commission is allowing companies to omit a new AFL-CIO proposal that seeks to bar current or former CEOs from serving on the compensation committee. 

This proposal, according to AFL-CIO officials, was inspired by several academic studies that concluded that firms with multiple CEOs on their pay panels tend to ratchet up executive pay. This year, the labor federation targeted firms with a combined CEO/board chair, where CEO pay has increased despite negative share performance, and where at least two external chief executives sit on the compensation committee.

US disclosure-based regulation ... suffers from two critical failings. First, it lacks coherence in that shareholder rights are presently too weak to compensate for the hands-off regulatory approach. Second, disclosure has been deployed excessively as a regulatory tool, resulting in inundation of information.¹

So wrote Simon Wong, managing director at Governance for Owners and Adjunct Professor of Law, Northwestern University School of Law, in the Financial Times on Feb. 28.

On February 19, Bloomberg reported that Alcatel-Lucent “agreed to pay $137.4 million and change internal procedures to avoid U.S. prosecution for alleged bribes paid in Costa Rica, Taiwan and Kenya, according to a company regulatory filing.”

This settlement is part of a “serious crackdown” on violators of the US Foreign Corrupt Practices Act (FCPA), says Jan Fetter-Degges, Manager of RiskMetrics Group’s Global Sanctions Service. “Over the past year, the Justice Department has levied unprecedented fines on firms accused of foreign bribery and accounting fraud.”

CVS Caremark and Wells Fargo this week joined the growing list of U.S. issuers that plan to hold advisory votes on executive compensation.

In response to the U.S. Supreme Court's Citizens United v. Federal Election Commission decision, investors and lawmakers are mobilizing to obtain more disclosure on corporate political spending.