Archive | December, 2010

Minow on Why Business Is Hollywood's Go-To Villain

Nell Minow, who is known as both the Movie Mom and the queen of corporate governance, reviews the portrayal of business at the movies in 2010.

Corporations and their leaders are seldom cast as movie heroes. But in the movies of 2010, whether you were at the multiplex or the art house, the go-to bad guy was the American corporation.

Check it out via Why Business Is Hollywood’s Go-To Villain, Especially Now | BNET, 12/30/2010.

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Video Friday: Let's Risk Being More Fully Ourselves in 2011

Conformity explores the issue at the root of groupthink by distilling over 7 decades of seminal studies into the psychology of group mentality. Hat tip to Simoleon Sense.

We’re back from a month in China and India and have lots of work to catch up on but hope to begin posting regularly again in the new year. Best wishes for 2011 to those helping to transform our world through more accountable and democratic forms of corporate governance.

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Massey Energy Shareholder Wanted

Newground Social Investment is looking for a Massey Energy shareholder to file a corporate governance resolution regarding vote-counting.  They found out late last week that the shareholder that they were teaming up with did not qualify to propose the resolution, so they are scrambling at the last minute to find another Massey shareholder that does qualify to propose the resolution.

Companies (under Delaware law) can use variant vote-counting formulas that severely disadvantage shareholders, such that majority votes (using the required SEC formula for determining resubmission eligibility) get reported out to shareholders and the press as failing.

Massey did this last year on a shareholder-sponsored resolution — reporting a 53% vote as garnering only 36.8%.  Yet, the company counts differently for management-sponsored proposals — but in each instance they use the formula that most favors management.

The Seattle Times ran a story about this issue which provides further information.

It’s a very good resolution that, because it addresses fairness and shareholder democracy, should be equally appealing to progressive or conservative alike.

It will be a 1st-year resolution at Massey.

At another company Newground got an 17.8% 1st-year vote last year — this was with proxy services recommending against it.  This year the proxy advisory services are going to reverse course and recommend for it, so with that (along with everything else that’s gone on at Massey in 2010), this should end up being a very successful undertaking.

If you have held more than $2,000 worth of Massey shares and would like to help file this resolution, please contact Mark Schlegel at  or Bruce Herbert at Newground.

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Voting by Phone in Corporate Elections

Maybe the app will be renamed iVote.

Companies who want to encourage shareholders to vote on corporate resolutions publicized in proxy statements can do so next year, by allowing them to cast votes on their iPads, iPhones, Blackberries, Android or other smart handheld devices.

Broadridge Financial Solutions said that it will make its software available early next year on mobile data devices such as smartphones and tablets.

The software is already available for use on personal computers. The move to mobile devices is “to improve and encourage more shareholder voting and enhanced shareholder communications,” said Joseph Vicari, Vice President, Business Strategy and Development, Broadridge.  via Voting by Phone, in Corporate Elections.  Thanks to Gary Lutin for heads up on this article.

Attention: Anyone out there building the iVote app, please build in automatic interfaces with and Great to enable voting by phone but even better to enable intelligent voting. Shareowners need information on the people and the issues before they vote.

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7 Habits of Successful Shareholders

V. Ramesh, Head, Asia-Pacific, CurAlea, Bangalore provides a short guide on habits that would help shareowners successfully manage risks. His audience is mostly Indian, but his advice is universal. In very abbreviated form:

  • Learn to think like an owner
  • Get familiar with the numbers
  • Check if your company is well-governed
  • Understand your company’s key risks:
  • Read the fine print
  • Place a premium on transparency
  • Be an active shareholder

And know your rights! via The Hindu Business Line : 7 habits of successful shareholders.

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Video Friday: FCPA Compliance

SVNACD Avoiding the Crosshairs.

  • A primer on anticorruption laws relevant to U.S. Companies, especially the Foreign Corrupt Practices Act (FCPA
  • Discussion of the ramifications of the new whistleblower provision of the
  • Dodd-Frank Act, particularly as it relates to FCPA enforcement
  • Insight into the nuts and bolts of investigating FCPA allegations and dealing with the Department of Justice and SEC
  • Understanding the need for proactive compliance efforts and what such efforts might be
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Mutual Funds Warm to Corporate Disclosure of Political Expenditures

Since 2004, shareowners have been filing a proposal at corporations asking for greater transparency in their political expenditures. There are now about thirty proponents, and the number is growing. Their proposals incorporate model language developed by the Center for Political Accountability (CPA). The language has evolved slightly as campaign finance laws and practices have changed, but the thrust has remained about disclosure and board oversight. The proposal has won majority support at just two corporation, Unisys and Amgen. But seventy-seven S&P 500 corporations have implemented it following negotiations with proponent shareowners. Institutional opposition to the proposal has softened. Yesterday, CPA released a report indicating that, for the first time, main-stream mutual funds have not cast a majority of their votes against the proposal, choosing to either vote for it or abstain, instead.

*average of 3,982 votes per year. (Source: Center for Political Accountability)

According to Bruce Freed, president of CPA, this year’s controversial Supreme Court decision in Citizens United v. Federal Election Commission necessitated no changes in the model proposal, but it made the proposal all the more important for helping companies manage the heightened risks from and pressures to engage in political spending.

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Course Outline for Corporate Governance

This course outline by Richard Leblanc for York University is designed to incorporate developments in corporate governance since the global financial crisis, including risk governance, governance of executive compensation, shareholder democracy, director competency and other areas. It also incorporates the alignment of desired learning objectives, instructional methods, and student evaluation. It can be taught to executives and law or business students.

via SSRN-Course Outline for Corporate Governance by Richard Leblanc. At over 50 pages, it is one of the better examples I’ve seen.

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Broadridge: Should the Federal Trade Commission Intervene?

Broadridge Financial Solutions (BR) essentially monopolizes the proxy processing business in North America, providing such services to 90% of public corporations and mutual funds in the region. Monopolies aren’t necessarily bad. Some products and services are most efficiently delivered by a single provider. But good monopolies are regulated monopolies, and Broadridge isn’t regulated. Whenever the SEC updates rules governing the proxy process, they usually have to ask Broadridge how things are actually done. It’s kind of pathetic.

By choosing how to do things, Broadridge makes de facto rules. A perfect example is Voting Instruction Forms (VIFs). These look and feel like proxy cards, but they are not. Broadridge mails out VIFs with shareowners’ proxy materials in lieu of proxy cards. The way Broadridge explains it, shareowners fill out VIFs to indicate how they want their proxies voted, which is not the same thing as filling out a proxy. Got that? The practical significance of VIFs is that they allow corporations to circumvent the SEC’s rules governing the content and layout of proxy cards. A proxy card is essentially a ballot, so those rules are important for ensuring fair corporate elections. The rules apply to proxy cards but VIFs aren’t proxy cards. In May 2009, the United States Proxy Exchange (USPX) joined Jim McRitchie in filing a request for rulemaking with the SEC. This asked the Commission to address abuses related to VIFs. To date, the Commission has not acted on the request.

No legislation ever created VIFs. We are not aware that the SEC promulgated their use. As far as anyone can tell, Broadridge quietly created them. Whenever the SEC found out, they didn’t stop the practice. De facto, Broadridge makes the rules.

VIFs are identified with 12-digit control numbers. Broadridge issues and manages the control numbers. And they are using those control numbers to offer a host of on-line products. Want to submit your VIF online? Go to Broadridge’s website, and enter your control number. Want to attend a virtual annual meeting? Go to Broadridge’s website, and enter your control number. Broadridge is poised to monopolize such on-line services for the simple reason they own the control numbers, and would-be competitors don’t. In 2011, Broadridge plans to release phone apps that will allow people to submit VIFs on the go. You will just tap on a Broadridge icon and type in your control number.

Shareowners’ response to Broadridge’s digital services have mostly been negative. has attracted millions of users, and it is very convenient. As with all things Broadridge, transparency is an issue. You can’t know if your votes actually make it into the totals. Worse, shareowners noticed that items left unvoted were being automatically filled in as votes according to management recommendations. That little feature was what motivated McRitchie’s request for rulemaking.

The USPX has reported on the various ways Broadridge’s virtual annual meeting service disenfranchises. See in particular reports on Symantec’s virtual meeting in September and Broadridge’s own virtual annual meeting last month.

Perhaps the biggest flop among Broadridge’s forays into the digital realm has been their Investor Network, which allows corporations to pay Broadridge between $20,000 and $50,000 a year to host an on-line forum for their shareowners. In January 2008, the SEC adopted a new Rule 14a-17 and amended Rule 14a-2 to

… facilitate the use of electronic shareholder forums by public companies and their shareholders.

With the Investor Network, Broadridge tried to capitalize on this opportunity. Their CEO, Richard Daly, likes to boast that, on their forums,

… we can know with complete confidence that the person whose post you are reading or with whom you are communicating is an actual investor.

I am not sure why that is important, as shareowner forums would benefit from the participation of journalists, regulators, employees or shareowner activists. But Broadridge controls the control numbers, so they can guarantee it.

Few corporations have adopted the Investor Network, and those who have generally did so to augment a Broadridge-hosted virtual annual meeting. Shareowners have mostly given the service a pass. With the initiative floundering, Broadridge is shifting to a “Plan B.” Dominic Jones of IR Web Report broke the news that Daly is personally lobbying the SEC commissioners to mandate that all public corporations offer shareowner forums. Daly anticipated this course two years ago in an August 2008 conference call:

The activity here is really going to be driven by, is the SEC going to deem that this is something that shareholders need to have the right to. And if that was the case, then I can’t imagine it getting done any other way than through the plumbing we have in place, and again that’s a chasm between us and any one else, no one else is close to connecting every investor to every public company.

As things already stand, anyone can implement a shareowners forum. There is no need to force corporations to do so. There is no reason to mandate that such forums offer features that only Broadridge is poised to provide. That would only postpone the day when shareowner forums actually take off.

If Daly persuades the SEC to mandate his monopolistic vision, it will be time for shareowners to petition the Federal Trade Commission for some antitrust enforcement. It may already be time.

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Board or Shareholders – Who Should Determine Management Compensation? A Model of Compensation Governance

The efficacy of boards of directors as a critical governance institution has attracted increasing scrutiny in the wake of the recent financial meltdown. CEO compensation which consequentially determines overall management compensation in a firm, is a key governance decision entrusted with the board. A relevant, though unexplored question would be whether shareholders are better served by making the compensation decision themselves.

In this paper, in a game theoretic set up, we analyze shareholder payoffs under the traditional delegated- governance structure wherein shareholders set the compensation of the board, but delegate the management compensation decision to the board, and contrast such delegated- governance with an alternate owner-governance structure wherein shareholders determine the compensation contracts for both the board and management. Under unobservable effort, we consider both deterministic and stochastic firm performance, jointly determined by the effort of the board and management.

We find that shareholders are never worse off under owner-governance, though management wages as well as effort are higher under certain conditions. Within a deterministic setting, board wages as well as effort are equal or higher with centralized governance. Under extreme stochastic effects, which might describe boom or bust environments, it does not pay to incentivize the board or management to expend effort. In a stochastic environment where output is determined primarily by board effort, it does not pay to incentivize management for effort. Our analysis suggests a possible explanation for the puzzling observation of rising managerial compensation, often not in congruence with firm performance, as the board faces no penalty for misaligned managerial wages under delegated-governance. We show that owner-governance generally eliminates non-aligned incentive structures.

via SSRN-Board or Shareholders – Who Should Determine Management Compensation? A Model of Compensation Governance by Shivendu Shivendu, Joseph Vithayathil.

Continue Reading · WayBack Machine

Five years ago at in we reported:

  • On the debate surrounding majority vote requirements. Is it part of real democracy or simply an illusion?
  • The SEC voted to allow e-proxy materials.
  • Corporate Watchdog Radio interviewed SRI investor and author John Harrington (The Challenge to Power: Money, Investing And Democracy) as well as Robert Monks on the future of shareholder democracy.
  • David Webb reported that 100 of 800 new seats on the expanded Election Committee would go to the industrial, commercial and financial sectors which are dominated by corporate voting. We encourage readers to subscribe to David Webb’s informative independent newsletter on corporate and economic governance, business, finance, investment and regulatory affairs in Hong Kong. (Corporate Voting in HK Elections, 11/28/2005)
  • The Securities and Exchange Board of India said listed entities could face stiff penalties, including de-listing, if they do not comply with corporate governance norms, such as having at least 50% independent by the year-end. (Sebi may de-list corporate governance defaulters, The Economic Times, 11/25/2005)
  • The current issue Directors & Boards (4th Quarter 2005) includes an advice snippet from eleven board members and governance experts. The most responsive was from Charles Elson, Edgar S. Woolard Jr. Chair in corporate Governance and director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
  • Large investors need to take a more active role in the board nomination process – seeking either director of indirect representation. Directors representing large equity interests tend to be highly motivated and effective management monitors. Rules and norms, both legal and market-based, that restrict such involvement need to be re-examined and reformed to encourage this kind of activity. This is the biggest single change to our governance system that I believe is now necessary to ensure better board functioning.

    Elson is leagues ahead of the others who call for boards to “strengthen the focus on strategy,” “be better informed,” “know what and where all the risks are,” “get passionate about the company’s mission,” etc. Compared to Elson’s response, most sound like answers from Miss America contestants.

    Ten years ago? I know I reported news but it is lost to the sands of time.  I’ll post it up if I ever find it. I even reported news 15 years ago, but misplaced that too. Too many computers ago.

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Comply or Explain for Philippines

Meet corporate governance standards or explain, BusinessWorld Online Edition, 12/21/2010. PSE released a guide book to help listed companies meet corporate governance standards, but there will be no sanctions on firms that fail to comply.

Under the bourse’s corporate governance rules, a listed company should develop and execute a sound business strategy, establish a well-structured and functioning board, maintain a robust internal audit and control system, recognize and manage enterprise risks, and ensure the integrity of its financial reports as well as its external auditing function.

Firms must also respect and protect the rights of shareholders, particularly those in minority or non-controlling groups; implement an internationally accepted disclosure and transparency regime; respect and protect the rights and interests of employees, the community, the environment, and other stakeholders; avoid abusive related-party transactions and insider trading; and develop and nurture a culture of ethics, compliance and enforcement.

The only sanction is we will disclose it to the investing public, who will decide their investment in the stock,” said PSE President and Chief Executive Val Antonio B. Suarez.

The PSE said its Corporate Governance Improvement Program complements the Code of Corporate Governance of the Securities and Exchange Commission. In the “CG Watch 2010” report by the Asian Corporate Governance Association and CLSA Asia-Pacific Markets released in September, the Philippines sank at the bottom of the list of 11 Asian countries in terms of corporate governance standards. See also, Institute of Corporate Directors (ICD)

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Video Friday: How to expose the corrupt

As a director of the World Bank in Nairobi, Peter Eigen saw firsthand how devastating corruption can be. Some of the world’s most baffling social problems, says Eigen, can be traced to systematic, pervasive government corruption, hand-in-glove with global companies. At TEDxBerlin, Eigen describes the thrilling counter-attack led by his organization Transparency International.

via Simoleon Sense » Blog Archive » Video: Ted Talk – How to expose the corrupt: A talk by a director of the world bank.

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Legal Resouces: Blogs, Lawgents & Practical Law Company

As mentioned last month, I was proud to have included in a list of the 25 best business law blogs for 2010 by LexisNexis. The well deserved winner was  However, check out the rest of the blogs. Many are excellent.

Another new site, at least to me, is, a legal news aggregator (shouldn’t it be Lawagents instead of gents?).  You choose which legal blogs and resources to follow and can see the five most recent updates from each site chronologically in a single place. You can subscribe and unsubscribe at anytime from about 100 feeds. Better yet, you can “Request a Feed” and they are very responsive in adding them… and the service is free. I’ve added them to the Law portion of our Links page.

Last, I reacquainted myself with Practical Law Company, which is primarily aimed at in-house counsel. PLC Cross-border has plenty of multi-jurisdictional guides (Handbooks) outlining the law and practice on various subjects by jurisdiction.  Chapters are organized in an identical question and answer format, and can be searched by question and jurisdiction.

Looking at PLC-US, they do a good job of providing a multitude of overviews. A few picked at random:

  • federal, state, exchange and institutional investor based corporate governance standards,
  • how to deal with a proxy contest
  • preparing for an annual meeting
  • Risk Factors: What Keeps You Up at Night?

They also have an abundance of standard clauses, practice notes and checklists. Need to file an SEC Form 8-K? You can find it here complete with instructions for this and many other filings. The site would also be handy for shareowners. For example,

328 companies were selected from among the list of Fortune 500 companies that filed proxy statements in the 2010 calendar year for an annual stockholders’ meeting to be held during 2010. Of the 328 companies reviewed, 165 included at least one stockholder proposal in their proxy statements and a total of 387 stockholder proposals were included in the proxy materials. Often one stockholder who holds shares in several public companies submits the same proposal to more than one company.

You can easily see what type of proposals were filed, what weren’t included in the proxy (no-action or withdrawal), and whether the proposals passed or failed… and you can pull down the language. If you’re thinking about submitting a proposal, it could be handy to know that “eliminating supermajority passed 82% of the time, while less than 16% approved “say on pay” proposals from shareowners.

I’ve only just scratched the surface. Register here for a free trial. Let me know what you think. Are there better solutions out there?

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Institutional Investor Ownerhip Up at Larger Firms

Institutional investors came back to the securities markets in droves in 2009 after fleeing during the financial crisis of 2007-2008, according to The 2010 Institutional Investment Report released by The Conference Board earlier last month.

The report showed that institutional investors owned 73 percent of the top 1,000 companies in 2009 compared to 69 percent in 2008. However, at the 50 largest companies their  average ownership concentration was reduced from 64.5 percent to 63.7 percent.

Overall, total institutional investment assets rose 14 percent to $25.35 trillion, a level that hadn’t been reached since the end of 2007, when it was $28.27 trillion. [See press release] via Report: Institutional Investors Owning More of Larger Companies | Governance Center Blog, 11/23/2010.

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The Financial Panic & Financial Regulatory Reform

The Financial Panic of 2008 and Financial Regulatory Reform — The Harvard Law School Forum on Corporate Governance and Financial Regulation, Posted by Randall D. Guynn, Davis Polk & Wardwell LLP, on Saturday November 20, 2010, provides a good overview of the crisis and response.

The US and the rest of the world experienced a genuine financial panic in September and October of 2008. The US responded by taking a series of emergency actions to stabilise the financial system. The financial panic of 2008, and these emergency measures, created the ‘perfect storm’ for new financial regulation. The Dodd-Frank Act is the most extensive revision of US financial regulation since the 1930s, although it has left some important issues unresolved.

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Notes From Accuray’s 2010 Shareholder Meeting

After I attended Accuray’s (ARAY) annual shareholder meeting, I had a chance to tour its Sunnyvale campus, where I learned more about CyberKnife. CyberKnife is a radiosurgery tool that attacks and destroys cancerous tumor cells using highly precise radiation beams. CyberKnife is much less invasive than “scalpel” surgery. Its high accuracy (hence, the name Accuray) allows patients to minimize exposing their healthy organs and body parts to radiation. I rarely feel optimistic after shareholder meetings during this Great Recession, but Accuray gives me hope not only for its own future, but the future of medicine.

(via Notes From Accuray’s 2010 Shareholder Meeting — Seeking Alpha, 11/24/2010)

Matthew Rafat continues to be one of a very few people who routinely posts observations from annual shareowner meetings. I wish more would do the same. His insights from the Accuray meeting last year helped lead me to make a small investment in the company.

It was troubling to learn that for a second year in a row, Accuray attempted to avoid a public Q&A session. What are they trying to hide?

This year I had trouble voting my stock (see How I Voted at Hain, Cisco & Accuray). Later I was able to determine that in order to vote I needed not only a “control number,” which came with the e-mail from my broker but also a “pin” number. After some confusion, I was able to vote with management and CalSTRS.

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Video Friday: This Week in the Boardroom, Proxy Access Stalled is a great source for corporate governance videos every week. TK Kerstetter, President, Corporate Board Member does a good job with his interviews, such as the 11/11/2010 one with Thomas Quaadman, VP, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce. (This Week in the Boardroom – 11/11/10 – However, the guests and chatter too frequently reveal a bias towards management.

Directors are elected by shareowners, yet on This Week in the Boardroom we are much more likely to hear from the Chamber of Commerce than from the Council of Institutional Investors. Isn’t it about time than shareowners had access to the boardroom? Access to the proxy has been delayed. That’s no reason to delay access to this important weekly news show.

See also Corporate Board Member’s recent discussion with Brian Cartwright, former general counsel of the Securities and Exchange Commission and senior advisor, Latham & Watkins LLP, about the 2011 proxy season and what boards can do to prepare for the possible passage of proxy access. (Talking Points: Proxy Access Stalled But Still Important for Boards to Consider)

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A Failure of Governance

Many leading companies strive to follow best practices in corporate governance, demonstrating responsiveness to investors and protecting shareowner value in the process. Paradoxically these same companies often appear to leave their commitment to good corporate governance at the doorstep when they serve on the board of the U.S. Chamber of Commerce (the Chamber). In so doing, they perpetuate a dismal failure of governance.

How so? Many of these companies demonstrate strong environmental and social policies and urge their suppliers to follow suit. Yet sadly, they are silent at Chamber board meetings despite the association’s aggressive actions to undermine sustainable business practices.

The Chamber has always been a powerful force in Washington, lobbying and influencing elections. In the last two years, led by CEO Tom Donohue, it has attacked a wide range of issues including healthcare, climate change, and financial market reforms. The Chamber announced it would spend $75 million in political campaigns in 2010 with one goal being to unseat all congressional members who voted for health care reform. The funds for this partisan political fight were raised and spent in secret, with no public accounting or transparency.

Similarly, the Chamber, allegedly on behalf of the business community, lobbies, speaks publicly and puts political dollars to work effectively challenging company positions on environmental matters. Recently, the Chamber sued the EPA to block its ability to mitigate climate change through regulation.

The Chamber’s website states:

Directors determine the U.S. Chamber’s policy positions on business issues and advise the U.S. Chamber on appropriate strategies to pursue.  Through their participation in meetings and activities held across the nation, Directors help implement and promote U.S. Chamber policies and objectives.

Hence Walden, with other investors, has discussed with dozens of companies how membership on the Chamber board may be perceived as supporting the Chamber’s policies. Sadly, we are learning that Chamber board members rarely speak out publicly, or even privately at Board meetings, to challenge its anti-environmental positions. Nor do they confront the Chamber on its partisan political activities.

Clearly there are multiple contradictions between the environmental policies of Accenture, IBM, Pepsi, Pfizer, and UPS – all board members – and the Chamber’s antagonistic actions against climate change legislation and regulation. Yet, as Board members they set and oversee these very policies and campaigns that undercut their companies’ positions – a perplexing way to spend shareowner dollars.

It is time for Chamber board members to end this pattern of compliant and passive acceptance. It is not acceptable to allow anti-environmental policies to flourish and partisan political campaigns shrouded in secrecy to be the order of the day. A respect for good governance requires companies sitting on the Chamber board to stand up and be counted or head for the exit.

Guest post by Timothy Smith, Senior Vice President and Director of ESG Shareowner Engagement at Walden Asset Management, a leader in socially responsive investing since 1975.  See also, Resolutions Challenge Chamber Board Members on Political Expenditures, 11/15/2010.

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SEC Comment Letters on Proxy Plumbing

Worth Reading … SEC Comment Letters on Proxy Plumbing | Governance Center Blog. Gary Larkin, writing for the Conference Board, points to several comment letters worth reading. I’m pleased to have my letter among those listed. I’ve greatly abbreviated Larkin’s list and added a few nominees.

  • The Corporate Governance Network, James McRitchie, Publisher, Oct. 20. Excerpt: The issue of blank votes was previously discussed in my May 15, 2009 petition to the SEC to amend Rule 14a-4(b)(1)… In this section I address the need for Voting Instruction Forms (VIFs) to meet the same standards as proxies… Broadridge’s appears to fall short of full compliance with SEC regulations with regard to notifying the voter being solicited as to how blank votes are counted.
  • Wachtell, Lipton, Rosen & Katz, Oct. 19, Excerpt: …The prevalence of empty voting, and the increasingly sophisticated and manipulative ways in which it is employed, risks allowing voters who are not economically aligned with a corporation and its economic shareholders to subvert the corporate machinery to the detriment of those shareholders, the corporations that they own and, ultimately, the American economy…. The singular role that proxy advisory firms play in the field of corporate governance and elections, and the broad reach of their influence, calls for comprehensive and particularized regulation by the Commission for the protection of all investors…
  • The Corporate Library, Nell Minow, Chair, Oct.19. Excerpt: …. I would support the UK approach of putting the burden of proof on institutional investors to show why they have not been actively engaged in exercising those rights, and I would support a vigorous enforcement program to address the issues of conflicts of interest we have documented in the repeated failure of institutional investors to vote against value-destroying compensation plans (even when proxy advisory services tell them to do so).
  • Center for Capital Markets Competitiveness (part of the U.S. Chamber of Commerce), Tom Quaadman, Vice President, Nov. 15. Excerpt: …we recommend that the CCMC and ISS develop standards that would set forth a formal process that ISS would observe to formulate and update its corporate governance policies.
  • National Association of Corporate Directors, Barbara Franklin, Chair; Kenneth Daly, President and CEO. Oct. 20. Excerpt: …New technologies and social media are changing the way boards garner information and sentiment from shareholders. Companies can do more to use technology in board-shareholder communications…. We do not believe that, for the most part, proxy advisory firms need additional regulation. However, if companies vote shares on behalf of owners, they should register as investment advisors.
  • Lawndale Capital Management, Andrew Shapiro. October 25. Excerpt: …Confidentiality is necessary to allow objective voting to take place and not interfere with the legitimate flow of investment due diligence interaction that would come from retaliatory treatment….changes to the NOBO/OBO regime and other proxy and Section 13 disclosure rules that reduce investor privacy also risk disruptions in the efficient allocation of capital.
  • United States Proxy Exchange (USPX), Glyn Holton. Comment Letter. Excerpt: In an honest election, votes that aren’t cast should remain not cast. You don’t offer those votes up to whomever would like a little extra suffrage: “Unused votes here! Who would like ’em?” That, essentially, is what the post-reconciliation and hybrid methods do, at least as described in the Concept Release. By “recycling” votes other shareowners have chosen not to cast, they boost certain shareowners’ voting power beyond what it would be if individual shares were tracked through clearance and settlement to individual beneficial owners … We do not believe it is a purpose of the Commission to help corporations achieve quorum. If they had more difficulty achieving quorum, corporations might take more effective actions to attract participation by individual investors in the proxy process.
  •, Mark Latham. September 29. Excerpt: …To maximize the benefit to our economy, CDV should be open and free… Competition among proxy advisors is important to ensure that we get value for money. Letting us retail investors allocate collective funds by vote to competing advisors would also ensure loyalty to our interests… OBO should be the default status for all retail investors. NOBO should be by opt-in only. A NOBO default would increase the entrenchment of corporate management. An OBO default would better protect retail investors’ privacy. Issuers should not be able to solicit proxies directly from beneficial owners… management should communicate with shareowners via the public forums created by Open CDV and competitive markets for public advice.

And for a UK perspective, check out US proxy reform: It’s completely broke, please fix it!

In the words of the STA summary “of the 199 original letters submitted, only two expressed a “very negative” opinion on proposed reforms to any of the issues: the American Business Conference, and Broadridge (which stands to gain the most by maintaining the status quo). The implication is clear: the consensus among all stakeholders – from issuers to academics – is that major reforms are badly needed”.

We seem to have found the definitive diametric opposite of the good old maxim ‘if it ain’t broke, don’t fix it’.

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