The SEC settlement, announced today, appears to be the first time in years that the commission has sought specific governance reforms that go beyond existing disclosure rules.

The SEC enforcement action arose from the disclosures that Bank of America made to investors before they voted to approve an acquisition of Merrill brokered by federal officials. The SEC contends that Bank of America failed to disclose a prior agreement to pay of up to $5.8 billion in bonuses to Merrill employees and did not fully disclose the extraordinary losses that Merrill sustained in October and November 2008.

The Merrill deal also inspired two “vote no” campaigns before Bank of America’s April 2009 annual meeting and help prompt investors to approve a binding independent board chair proposal. Unable to put the controversy behind him, CEO Kenneth Lewis agreed to step down late last year.

The SEC-Bank of America settlement is subject to court approval, which isn’t guaranteed. In September, U.S. District Judge Jed Rakoff rejected a $33 million settlement and asked why the SEC didn’t seek payments from individual executives. The new settlement doesn’t call for any payments by current or former executives.

The proposed settlement would require Bank of America to maintain seven reforms for three years, including:

• Provide shareholders with an annual non-binding “say on pay” on executive compensation.
• Retain an independent auditor to perform an audit of the bank’s internal disclosure controls.
• Have its CEO and chief financial officer certify that they have reviewed all annual and merger proxy statements.
• Retain disclosure counsel who will report to, and advise, the audit committee on the bank’s disclosures, including current and periodic filings and proxy statements.
• Adopt a “super-independence” standard for all members of the compensation committee that prohibits them from accepting other compensation from the bank.
• Maintain a consultant to the compensation committee that would also meet super-independence criteria.
• Implement and maintain incentive compensation principles and procedures and prominently publish them on Bank of America’s Web site.

If the new settlement is approved, the $150 million penalty would be distributed to Bank of America investors by the SEC.

Even if Rakoff approves the revised accord, the company’s legal troubles over the Merrill transaction may be far from over. Also today, New York Attorney General Andrew Cuomo announced that he had filed suit against Bank of America, Lewis, and former CFO Joe Price.

Bob Stickler, a Bank of America spokesman, said the bank was disappointed by Cuomo’s lawsuit. “The evidence demonstrates that Bank of America and its executives, including Ken Lewis and Joe Price, at all times acted in good faith and consistent with their legal and fiduciary obligations,” Stickler said, according to the New York Times. “The company and these executives will vigorously defend ourselves.”

The complaint, filed in U.S. District Court in New York on Jan. 25, contends that Porsche, maker of the iconic 911 sports car, obfuscated its holdings in Volkswagen while misrepresenting its intent to acquire Europe’s largest carmaker. When Porsche disclosed in October 2008 that it controlled more than 70 percent of Volkswagen, shares of the latter shot up as short sellers bid up the limited amount of free float in an effort cover borrowed stock. A nearly five-fold spike in Volkswagen’s stock price brought on by short sellers rush to buy the stock briefly made the Wolfsburg-based carmaker the world’s most valuable company.

According to the complaint, Porsche officials including former CEO Wendelin Wiedeking, suggested through much of 2008 that the company would not take over Volkswagen or raise its stake above a simple majority. “These statements were false, since Porsche had decided and begun taking steps to take over VW at least as early as February 2008, and as early as mid-2008 had achieved control of nearly 75% through outright positions and options,” plaintiffs’ lawyers wrote.

Moreover, the complaint contends that the Stuttgart-based carmaker hid its position in Volkswagen by “manipulating the market in VW shares,” acquiring much of its holdings through options contracts entered into in 2007 and 2008. Those contracts, attorneys argued, allowed Porsche to “ambush the market” once it had amassed control over enough shares.

The complaint’s arguments and lexicon are reminiscent of characterizations by U.S. railroad firm CSX, which in 2008 argued that The Children’s Investment Fund, a London-based activist hedge fund, had concealed its holdings in the company--through swaps and other instruments--before launching a proxy fight. A federal district judge ruled that TCI had indeed failed to comply with the 5 percent public reporting threshold under Section 13(d) of the Williams Act.

Still, short sellers filing suit against Porsche will face an uphill battle, given the company’s domicile. “I can’t imagine any ruling that would impose a penalty of as much as the $1 billion requested by the plaintiffs,” because Porsche isn’t listed in the U.S., and German law doesn’t require disclosure of positions in cash-settled options, Frank Biller, a Stuttgart, Germany-based analyst at Landesbank Baden-Wuerttemberg, told Bloomberg News.

Moreover, the hedge fund plaintiffs do not appear likely to pick up support from counterparts in the U.K., home to roughly 80 percent of all European hedge funds. London-based funds are believed hesitant to wade in over fears their involvement may hamper efforts to temper European regulators’ plans to clamp down on such investors.

David Stewart, chief executive of Odey Asset Management, which was among those shorting Volkswagen, told Reuters that his firm had no plans to get involved. “If anyone's got any sense, they'll just watch it,” he said.

Several prominent institutional investors--including DWS, Germany’s largest mutual fund--have voiced some measure of support for a proposal to install Willi Berchtold as chairman, whose candidacy was put forward by a group of investors, including BNY Mellon and Legal & General.

German business daily Handelsblatt characterized the dispute as a challenge to the traditional way of handing over the chairmanship without shareholder consent, while Financial Times Deutschland is predicting that the campaign stands a good chance of becoming the first-ever rejection of a management-nominated chairman at a DAX 30 company.

Wucherer’s nomination for the chairmanship had already caused controversy due to his alleged involvement in a 2006 bribery scandal at Siemens. Wucherer, who was a Siemens executive board member from 2000 to 2007, was never found guilty of personal wrongdoing, though two divisions under his leadership were found to have engaged in illegal bribery payments. Wucherer recently settled a damages suit with the engineering conglomerate for EUR 500,000 ($700,000).

Outgoing Infineon chairman Max Kley defended Wucherer’s selection as his successor, touting his “completely independent and profound knowledge" of the company in a letter to shareholders in January. He added that “no individual transgressions have been identified either in his own conduct or in the areas for which he was responsible and ... all investigations and the administrative proceedings against him have been dropped.”

London-based Hermes has insisted that its opposition to Wucherer is based solely on his lengthy tenure as a member of Infineon’s supervisory board. Wucherer is in his 10th year on the supervisory board. Hermes has criticized Infineon in the past for allegedly failing to act quickly enough to adapt to changes in the industry and to the recent financial crisis.

After the bankruptcy of Infineon’s 78 percent subsidiary, Qimonda, nearly put the semiconductor group out of business in early 2009, shareholders in February approved Kley’s formal discharge with a razor-thin majority of 50.026 percent, which was widely seen as a symbolic demonstration of discontent. Hermes had led a “vote no” campaign against the discharge vote of both boards at that meeting, and argued in its recent statement supporting Berchtold’s nomination that last year’s discharge vote “indicated a clear demand for extensive renewal of the supervisory board no later than at the general meeting in 2010.”

Hermes contends that Berchthold, who is CFO of privately held German automotive supplier ZF Friedrichshafen, is “ideally placed to make a significant contribution to the work of the supervisory board” based on his top-level management experience in the information technology and car component industries.

Infineon has criticized Hermes’ opposition to Wucherer, arguing the fund fails to account for the company’s recent turnaround, which was reflected in the group’s reduced debt, increased annual cost savings and positive fourth quarter results. Berchtold’s nomination has also been criticized by some of the chipmaker’s automotive clients, who fear that his ascendancy to the supervisory board could lead to favorable treatment for ZF Friedrichshafen, an Infineon client. German retail investor association DSW has spoken out against Berchtold’s election for this reason (the association also opposes Wucherer’s election). Following days of speculation, Berchtold indicated on Jan. 26 that he will step down from his position at ZF Friedrichshafen if elected to the Infineon chairmanship.

Although some press reports suggest Berchtold’s election is virtually assured, complications inherent in German proxy voting procedures may temper such assessments. Berchtold’s nomination has been submitted as a counterproposal, which means that his name will not appear on the annual meeting ballot. Under normal procedures, his candidacy would not be put to a vote unless a simple majority of the participating share capital first votes against Wucherer. However, shareholders representing 10 percent of share capital may request that Berchtold’s candidacy be put to a vote before that of Wucherer’s. In the past, such counterproposals have been notoriously difficult to support for shareholders voting by proxy through subcustodians, which, in this case, are likely to comprise most of the dissidents’ supporters.

Sources close to the proponents have indicated that a counterproposal was chosen over a stand-alone shareholder proposal due to the risk that a stand-alone proposal could have been contested by the company and dismissed in a German court.

Despite the potential voting difficulties, the campaign has resonated with Infineon management. On Jan. 27, Wucherer announced that, if elected, he would serve for one year and seek out an independent successor.

Hans Hirt, head of European corporate governance at Hermes, welcomed Wucherer’s offer but told the Financial Times that the investors would continue their campaign until Berchtold secured a board seat. “Any compromise has to involve him becoming a supervisory board member,” Hirt said.

The letter campaign was coordinated by the Walden Asset Management, the office of Connecticut’s state treasurer, and the American Federation of State, County, and Municipal Employees. Among the signatories are CalSTRS, CalPERS, TIAA-CREF, the United Methodist Church General Board of Pension & Health Benefits, the Council of Institutional Investors, and a coalition of religious investors, trade unions, and firms that engage in socially responsible investing.

JPMorgan Chase, Morgan Stanley, Citigroup, Wells Fargo, Bank of America, and American Express are among the firms that received the letters. Many of the companies have received “say on pay” proposals from shareholders. A few financial firms, such as Goldman Sachs and State Street, previously agreed to conduct advisory votes.

“Adopting Say on Pay is not only an idea whose time has come, it is a reasonable and modest step,” the letter states, according to a Jan. 28 press release.

The SEC said that in their required disclosure, companies should consider how their businesses may be impacted not only by existing, but also pending legislation and regulation on climate change, by existing international treaties, by direct and indirect economic, scientific, political and similar impacts of climate change, and by the actual and potential impact of the physical effects of climate change on their business operations, such as availability of natural resources and potential damages to property. The SEC also said that the standard that should be used to determine materiality for disclosure requirements regarding climate change should be based on the “substantial likelihood that an average investor would consider it important.”

SEC Chairman Mary Schapiro and Commissioners Elisse Walter and Luis Aguilar voted for the release, while Commissioners Troy Paredes and Kathleen Casey voted against.

Walter stressed that the guidance was necessary, stating that she “does not believe public companies are [currently] doing a best job with respect to required disclosure.” In his remarks before voting, Aguilar said that companies need to consider whether they have an effective system for gathering information and that they should ensure they have sufficient information to evaluate whether climate change has a material effect on their companies. The last time the SEC issued interpretative guidance on environmental disclosure was 25 years ago.

Casey questioned the timing of the release, noting that the science around climate change is “far from settled.” However, Schapiro stressed that the SEC “was not opining on whether the world's climate is changing, at what pace it might be changing, or due to what causes.” The “guidance will help to ensure that our disclosure rules are consistently applied," she said.

According to news reports, it appears that GM’s board decided that the need for stability outweighed the potential corporate governance concerns posed by combining the roles. The U.S. government still owns a 60.8 percent stake in automaker, and it does not appear that the company’s board sought approval from Obama administration officials. GM no longer has any publicly traded shares since emerging from bankruptcy in July.

Whitacre, a long-time telecommunications executive, held both the chairman and CEO titles at AT&T from 2005 to 2007 and at SBC from 1990 to 2005.

GM is taking the opposite approach of Whole Foods Market, which announced in late December that it was splitting the two roles. The divergent approaches suggest that the question of combining or splitting the CEO and chairman roles will remain a key governance issue this year.

In addition to a proposal at Whole Foods, labor pension funds and other investors have filed 36 resolutions for the 2010 proxy season that urge companies to appoint independent board chairs, according to RiskMetrics Group data.

In addition, U.S. companies will be required under new SEC disclosure rules this year to elaborate on their reasons for selecting a particular board leadership structure.

Todd Stern, the U.S. special envoy on climate change, said it was “a huge roll of the dice” to have more than 130 heads of state attend the Copenhagen summit in December, and that “there would not have been an agreement were it not for the personal intervention” of President Obama in the summit’s final hours. “The accord is lumbering down the runway, and now it needs to get speed so it can take off,” Stern said.

However, billionaire investor George Soros labeled the summit a “failure” that “delivered very little” on its promises. He reiterated a plan first proposed in Copenhagen to tap $283 billion in special drawing rights from the International Monetary Fund to kick-start large-scale investments in low-carbon technologies in developing countries. “There has to be a bigger push,” Soros said. “Countries must get more engaged. We are losing valuable time.”

Stern and Soros were just two of more than a dozen prominent speakers at the 2010 Investor Summit on Climate Risk, held Jan. 14 in New York and convened by Ceres, the United Nations Foundation, and the Investor Network on Climate Risk (INCR), a group of nearly 90 institutional investors with more than $8 trillion in assets under management. Other speakers addressing the invitation-only conference included former Vice President Al Gore, UN General Secretary Ban Ki-moon, and Abby Joseph Cohen, the chief investment strategist for Goldman Sachs.

At a luncheon address, Gore urged the U.S. Congress to pass climate legislation by April 22, the 40th anniversary of Earth Day—a challenge now made harder by Tuesday’s election of Republican Scott Brown to replace the long-time Senate seat held by Ted Kennedy of Massachusetts. Gore said U.S. legislation would create “access to the largest carbon trading market in the world” and “completely change the interests of other nations for a binding agreement.”

Gore also commented on the findings of a survey sent by Ceres to the world’s 500 largest investment managers in which nearly half of the respondents—49 percent—said they did not analyze climate risks because their investor clients did not ask them to. To fill this gap, Gore recommended that pension funds and other asset owners explicitly address climate change in their requests for proposals and modify their fee structure so that asset managers are rewarded for long-term performance, which Gore defined as three years or more.

Picking up on this theme, Abby Joseph Cohen told the conference that “Pension funds need to speak up” and that “INCR is a well-informed voice” helping to achieve a critical mass to “make money management more effective and not as inefficiently priced” in assessing environmental, social and governance issues. Cohen pointed out that corporate disclosure on environmental matters has changed markedly in recent years, moving beyond discussion of “liability by dirty industries” to disclosures “that are more asset focused and get at the revenue and earnings potential” of investments in clean technology and sustainable fuels.

Florida Chief Financial Officer Alex Sink also queried conference panel members on their due diligence to assess the climate risk management capabilities of their fund managers. She noted that the Florida Department of Financial Services has contracted with RiskMetrics Group to conduct a semi-annual review of 20 corporate bond managers for its $6-billion fixed-income portfolio, with results posted on the Florida Treasury’s website. Pennsylvania Treasurer Rob McCord responded that “we’re doing a bad job of this” for his state’s treasury and two employee pension funds and that he would be checking out CFO Sink’s website.

McCord also said he would begin asking fund managers about their climate risk management capabilities and would be evaluating the fee structure for their services. He also issued a challenge to other members of the conference to step outside of their comfort zone and “take an action involving greater risk or more money to move the needle on climate change.” McCord himself will be co-hosting one of the next investor forums addressing climate change when the Pennsylvania Association of Public Employee Retirement Systems hosts its annual spring forum in Harrisburg on May 18-19.

In other news, the U.S. Securities and Exchange Commission plans to discuss at its Jan. 27 open meeting whether to issue an interpretative release to provide guidance to companies regarding their disclosure obligations on climate change.

In virtually all of these cases, the companies are acting in response to a recently filed shareholder proposal that requests a 10 percent (of outstanding shares) threshold, and/or a similar investor resolution that received majority support in 2009. Most of the companies are seeking a 25 percent threshold, although a few issuers have proposed different percentages such as Honeywell International (20 percent), and Medco Health Solutions (40 percent).

Companies have offered various arguments in support of a 25 percent threshold. Some issuers point out that 25 percent is more appropriate for their circumstances because there are several institutions that own more than 5 percent of their shares. They contend that a higher threshold would deter nuisance requests and force a hedge fund to seek broader support before requiring a company to incur the expense of holding a special meeting.

However, most shareholders won’t have an opportunity this year to choose between the competing thresholds because many issuers are obtaining permission from the staff of Securities and Exchange Commission’s Corporation Finance Division to omit the investor resolutions. In their no-action requests, the companies are successfully citing SEC Rule 14a-8 (i)(9), which bars a shareholder proposal that would directly conflict with a management resolution that the company plans to present at the same meeting.

Under that rule, an investor resolution may be excluded if it and the management agenda item present “alternative and conflicting decisions for shareholders.” In a 1998 rulemaking release, the SEC explained that the proposals don’t have to be “identical in scope or focus” for a company to exclude the shareholder resolution.

Among the companies that have successfully used the (i)(9) argument recently to exclude special meeting proposals are: CVS Caremark, Medco, Honeywell, NiSource, Baker Hughes, Becton Dickinson & Co., Eastman Chemical, and Safeway. In addition, Time Warner, Genzyme, Bristol-Myers Squibb, International Paper, Pinnacle West Capital, and Liz Claiborne Inc. have filed similar no-action requests to exclude proposals with a 10 percent threshold, according to investors.

Meanwhile, AT&T is trying to exclude a 10 percent special meeting resolution under a different SEC rule--14a-8(i)(10)--by arguing that it has “substantially implemented” that proposal. The company’s board approved a 15 percent bylaw on Dec. 18.

The special meeting proposals are part of a successful multi-year campaign by Nick Rossi, William Steiner, and other retail investors affiliated with John Chevedden, a long-time shareholder activist based in southern California. Overall, 31 special meeting proposals filed by investors received majority support in 2009, according to RiskMetrics Group data. Of the 14 companies that so far have sought to exclude proposals under Rule 14a-8 (i)(9), 10 had special meeting proposals that earned majority support last year.

Apache filed the lawsuit on Jan. 8 in federal court in Houston, where the oil-and-gas exploration company is based. The company contends that Chevedden failed to meet the proof-of-ownership requirements in SEC Rule 14a-8(b).

The case is especially unusual because the company did not first ask the SEC staff to issue a no-action letter, as issuers traditionally do when they seek to omit a shareholder proposal. Instead, Apache informed the commission staff in a Jan. 8 letter that the company intends to omit Chevedden’s resolution from its 2010 proxy statement unless a federal court rules that it must be included.

“It’s fairly unusual for a company to sue its own investors, and it’s even more unusual to sue an investor before an SEC staff ruling,” noted Cornish Hitchcock, a Washington-based attorney who represents labor funds in no-action matters. At the same time, Hitchcock said a company might want to file a lawsuit early to give a federal judge enough time to analyze the issues in the case before the firm’s proxy filing deadline.

The lawsuit appears to an attempt by Apache to get around the SEC staff’s no-action ruling in October 2008 that rejected a similar 8(b) challenge by Hain Celestial to a North Dakota reincorporation proposal. In that case, Hain argued that a letter from the proponent’s broker-dealer that confirmed ownership failed to cure inadequacies in a proof-of-ownership letter initially provided by the filer’s custodian. In rejecting the petition, however, the SEC staff said that a written statement from an “introducing broker-dealer constitutes a written statement from the ‘record’ holder of securities,” as required under the federal proxy rules.

Before the Hain decision, companies were able to omit dozens of proposals because of inadequate information provided by proponents’ custodian banks. During the 2008 spring proxy season, roughly 30 percent of shareholder resolutions were omitted for failure to meet eligibility requirements, up from 26 percent in 2007, according to RiskMetrics data.

The federal judge who hears Apache's lawsuit won't have to follow the staff's Hain ruling. As Apache points out, the staff has acknowledged many times that its no-action letters reflect only informal views and that only a federal court can decide whether a company is obligated to include a resolution in its proxy materials.

Apache’s decision to sue Chevedden appears to be a reaction to his successful activism in recent years. The California-based activist and his network of retail investors have submitted dozens of proposals each year that seek board declassification, the right of shareholders to call special meetings, to rescind supermajority rules, to adopt cumulative voting, and institute other reforms. Many of their proposals have won majority support.

Chevedden's investor network has angered corporate officials by sometimes filing more than one proposal on different topics at the same company. In response, more than a dozen issuers filed no-action requests last season that alleged that he violated the proxy rule that limits proponents to one proposal per meeting, but the SEC staff rejected those arguments.

Apache previously had success in the Texas federal courts during litigation with investors. In April 2008, the company obtained a declaratory ruling from U.S. District Judge Gray Miller that it didn’t have to include a proposal from New York City’s pension funds that sought an employment policy to prohibit sexual orientation discrimination. In that case, Apache went to court when it learned that the fund planned to file suit in New York after the SEC staff allowed Apache to omit the proposal.

Apache executives have expressed concern about shareholder proposals in the past. In comments in response to a 2007 SEC rulemaking, G. Steven Farris, the energy company’s CEO, argued that non-binding resolutions should be banned outright, or absent that, resubmission thresholds should be raised to 33, 40, and 45 percent. Prior to the 2007 meeting season, Apache unsuccessfully sought permission from the SEC to omit a proxy solicitation reimbursement proposal filed by the American Federation of State, County, and Municipal Employees.

It remains to be seen whether other companies will decide to bypass the SEC staff--and bear the expense of going directly to federal court--in the event Apache is successful in its suit against Chevedden. It’s notable that Apache is also seeking reimbursement of its attorneys’ fees and other expenses in the event that it prevails in the suit. Such tactics could have a chilling effect on activism by individual investors, who often lack the resources to hire an attorney to fight a lawsuit.

Once again, compensation will be a prominent topic for shareholder resolutions. As of Jan. 1, RiskMetrics was tracking 30 proposals seeking an annual advisory vote on compensation. “Say on pay” advocates say they plan to file about 100 proposals for the 2010 season; 76 proposals went to a vote in 2009 and averaged 45.6 percent support. Advisory vote proponents hope that continued investor support for these resolutions will prod the U.S. Senate to follow the House of Representatives and approve legislation this year to mandate annual advisory votes.

Labor funds and other investors have filed seven proposals seeking retention periods for executive stock grants; 14 resolutions on this topic went to a vote in 2009. Shareholders also have submitted nine proposals on compensation committee independence and three resolutions that target tax gross-up arrangements for executives.

Meanwhile, union funds and other activists hope to build on the momentum for their campaign for independent board chairs. As of Jan. 1, RiskMetrics was tracking 25 of these proposals. Thirty-four independent chair resolutions went to a vote in 2009 and averaged 36.9 percent support, up from 29.3 percent support in 2008. Four of those received majority support (based on the votes cast “for” and “against.”) Investors this year also will have a chance to vote on proposals seeking reports on CEO succession planning. In October, the Securities and Exchange Commission staff reversed its position that those proposals are excludable as ordinary business matters.

One topic that appears to be getting more attention this year is board diversity. So far, investors have filed 12 proposals on this topic. Only two board diversity resolutions went to a vote in 2009, but the SEC’s new disclosure requirement on board diversity has apparently spurred renewed activity on the topic.

RiskMetrics will update the Proxy Season Watchlist at the start of each month.

The recommendation, contained in the government think tank’s Jan. 4 final report on executive pay, represents an adjustment to the commission’s draft “two strikes” recommendation that drew criticism from Australia’s corporate lobby. The draft recommendation called for an automatic vote on directors in the event of 25 percent opposition to the remuneration report in two successive years.

Under the revised proposal, a board that suffered a 25 percent “against” vote on its remuneration report would be required to include a contingent resolution at its next annual meeting. This resolution, which would only be put to shareholders should the remuneration report suffer another vote of more than 25 percent against, would subject the board responsible for the remuneration report to re-election at an extraordinary meeting, to be held within 90 days, should a majority of shareholders support the “board spill” resolution. In other words, three votes rather than two would be needed to trigger a vote on directors.

The change followed criticism by business advocates that the initial “two strikes” proposal could lead to an automatic board “spill” simply if there were two large votes against the remuneration report in consecutive years.

The final report also recommended that boards be stripped of their ability to fix the number of directors to make it harder for non-board endorsed candidates to be elected. The panel recommends that any board seeking to declare “no vacancy” in response to an investor candidate would have to seek shareholder approval for the no vacancy declaration.

This change, opposed by the Business Council of Australia, which represents large company CEOs, was in response to the routine declaration of no vacancy by boards. After such declarations, any non-board-endorsed candidate must receive a majority of votes to be elected and out-poll an incumbent director.

Notably absent from the Productivity Commission’s draft and final recommendations was any move to close a loophole created by changes to Australian Stock Exchange listing rules in 2005 that effectively removed the requirement for shareholder approval of grants of equity to directors if the shares granted were acquired using company money. Australian shareholder groups have been campaigning against this loophole for several years.

Among other recommendations put forth by the commission was a proposal to prohibit senior executives from voting on remuneration reports, and proposals encouraging greater disclosure of votes cast by institutional investors.

While RiskMetrics Group and other research firms count class-action cases differently, they all agree that 2009 filings declined from 2008 levels, primarily because there were fewer credit-crisis claims. In a Dec. 15 report, NERA Economic Consulting projected that 235 new cases would be filed in 2009, down 7 percent from 253 filings in 2008. In a joint Jan. 5 report, Stanford Law School and Cornerstone Research said that 169 cases were filed last year, a 24 percent decrease from 223 cases in 2008. Meanwhile, RiskMetrics’ Securities Class Action Services (SCAS) tracked 236 new federal cases in 2009, 16.3 percent less than the 282 cases brought in 2008.

"It looks like the credit crisis cases are not disappearing, but they are slowing down," Stephanie Plancich, a senior consultant with NERA, said in a press release. "It looks like they are winding down, and I would expect to see fewer in 2010."

The Stanford-Cornerstone report also attributes the decline to a decrease in market volatility. "After sharply rising for two years, market volatility decreased in the first half of 2009 and then fell again in the second half of the year. In that sense, it’s no surprise that filings decreased this year,” John Gould, senior vice president of Cornerstone Research, said in a press release.

While new case filings have declined, NERA points out that they still are outpacing the rate of litigation activity before the credit crisis began in 2007. There were only 130 new lawsuits in 2006, and the 2009 total is comparable with the 1997-2004 average of 231 annual filings, the NERA report noted. However, the Stanford-Cornerstone report concludes that last year's 169 filings were below the historical average of 197 cases observed between 1997 and 2008.

Adam Savett, director of SCAS, believes that the NERA numbers and conclusions track closer to the reality that his research team is seeing than the Stanford-Cornerstone numbers. "While 2009 saw a dip from 2008's surge in new cases, according to SCAS' numbers, new case filings in 2009 trended about 15 percent over historical levels," Savett said.

Once again, the largest category of 2009 cases were those that arose from the credit crisis. NERA reported that 60 credit crisis lawsuits (40 percent of the total) had been filed as of Nov. 30, and noted that most of those complaints were brought during the first half of the year. Likewise, Stanford-Cornerstone found that just 17 of 53 credit-related cases were filed during the second half of the year.

One significant trend that contributed to the 2009 filing volume were the cases brought by investors in exchange-traded funds (ETFs) managed by ProShare Funds and other managers. Thirteen ETF-related cases were filed between August and November, according to NERA; Stanford-Cornerstone documented 11 such cases.

Another contributing factor was the number of cases related to Ponzi schemes. According to NERA, there were 39 lawsuits, up from 10 cases in 2008. Most of those cases arose from Bernard Madoff's massive investment fraud case. There also were claims by investors who lost money with fund manager R. Allen Stanford.

The SEC’s commissioners voted 4-1 on Dec. 16 to finalize the new rules, which will require disclosure on board candidates’ qualifications, the rationale for the company’s board leadership structure, and whether diversity was considered in the selection of director nominees.

If a company’s fiscal year ended on or after Dec. 20, its Form 10-K and proxy statements must comply with the new requirements if filed on or after Feb. 28, the SEC explained in its Dec. 22 “Proxy Disclosure Enhancements Transition” guidance. If such an issuer files a preliminary proxy statement (or a 10K) before Feb. 28, the company still must comply with the new disclosure rules if it plans to file a definitive proxy statement after that date. If a company’s fiscal year ended before Dec. 20, it doesn’t need to comply with the new rules, but may voluntarily do so.

However, the SEC said a new mandate to report proxy vote results in a Form 8-K filing within four business days of a shareholder meeting will apply to any meetings held after Feb. 28, even for those issuers that mail their proxy statements before that date.

The SEC surprised access supporters in mid-December when it reopened the comment period on proxy access for another 30 days. Comments now are due by Jan. 19. Based on the SEC’s rulemaking notice, it appears that the agency wants more input on the potential costs and benefits of the rule and whether to permit issuers to opt out of federal access standards.

Corporate advocates and the SEC’s two Republican commissioners have urged the commission to refrain from imposing marketwide access requirements and instead allow “private ordering” by permitting shareholders and companies to work out their own access procedures through the corporate bylaw process. For investors to nominate board candidates, the SEC’s proposed Rule 14a-11 would impose a one-year holding period and minimum ownership thresholds that range from 1 to 5 percent based on an issuer’s market capitalization. The draft rule already has generated more than 500 comment letters. Many investors support the concept of access, but some institutions have called for higher ownership thresholds or a longer holding period.

The council and other long-time access supporters assert that a uniform, federalized approach to proxy access is preferable and is consistent with the uniform disclosure standards that have been in place for 75 years. In a Dec. 28 memorandum, the council outlined its arguments against permitting companies to opt out of the proposed access rule. Those points include:

* The need for a [SEC] proxy access rule to facilitate the exercise of shareowner rights has not been diminished by recent changes to state corporate law. While Delaware recently adopted a change to its corporation statute that allows companies or shareowners to adopt a proxy access rule, that change is unlikely to result in any significant proxy access reform for shareowners.

* The costs of addressing proxy access via individual company petitions would be prohibitive.

* The 500-word limit for shareowner proposals severely constrains an investors’ ability to draft and discuss a proxy access bylaw provision.

* Many companies have supermajority voting requirements to amend the bylaws. These supermajority requirements would make shareowner-proposed bylaw amendments nearly impossible to implement.

* Leaving proxy access reform to Delaware and other states could result in a hodge-podge of standards that would differ from company to company and from state to state. This would be burdensome, costly, and unnecessarily complex to shareowners, particularly those . . . with diversified portfolios of thousands of companies.

* Companies most in need of corporate governance improvements are those most likely to opt out of a proxy access rule. Even if individual companies were to adopt a proxy access bylaw, the ownership threshold may be set so high that proxy access could rarely, if ever, be exercised, even by long-term institutional investors.

* A rule that provides for a proxy access opt-out is hardly an “investor choice” model, but rather a “management choice” model that permits public companies to continue to deny their shareowners the fundamental right to nominate and elect directors.

“There will be an increase, as the waiters jump on board to try to get credit for doing it before being ‘forced’ to,” said John Keenan of the American Federation of State, County, and Municipal Employees, an advisory vote proponent. “Goldman did this to try and get away from being ‘public pay enemy number one,’ and this move only hastens the tipping point for other companies.”

Some of these voluntary adoptions likely will occur during the next three months before the proxy statement filing deadlines for companies with spring 2010 meetings. Once again, proponents plan to submit about 100 proposals seeking annual advisory votes on compensation. Those proposals averaged 45.6 percent support at 76 meetings in 2009, up from 41.5 percent in 2008, according to RiskMetrics Group’s proxy season scorecard.

Another pay vote proponent, Tim Smith, a senior vice president with Walden Asset Management, observes that some companies still are reluctant to take action because they don’t know whether the Senate will also approve advisory vote legislation. “It’s hard to predict the trends here, though we obviously feel the Goldman Sachs decision sets a significant precedent and adds pressure, especially on financial companies,” Smith said.

So far, at least 38 U.S. companies have pledged to hold voluntary “say on pay” votes, according to data collected by proponents, RiskMetrics, and the law firm of Cleary Gottlieb Steen & Hamilton.

Among the other issuers to take this step recently are Yum Brands, which agreed to provide a pay vote in 2011 if not mandated by federal law by then, and Mobile Mini, which said Dec. 14 that it will hold a triennial vote starting in 2010. Bank of New York Mellon plans to hold a pay vote in 2010, Keenan said. Intuit also has agreed to conduct an advisory vote in 2010; Hill-Rom Holdings and Bed Bath & Beyond plan to do so in 2011. According to proponents, 17 issuers (including Yum Brands) have taken action after shareholder “say on pay” resolutions received majority support.