Two Opportunities to Shape the Future

First, the IRRC Deadline of November 18 for Research Entries approaches. This is your chance to change the predominant paradigm of Modern Portfolio Theory.

Second, Institutional Shareholder Services Inc. (ISS) extended the comment period on their 2012 proxy voting policies until November 7th.  Institutional investors, individual investors, corporate issuers, and governance market participants are invited to provide feedback on ISS’ policy updates.  ISS did a specific outreach to readers, so I hope you will step up to the plate and take this opportunity to influence the largest and most influential proxy advisor. According to Martha Carter, ISS’ Head of Global Research:

ISS firmly believes that incorporating multiple views on corporate governance issues is critical for effective policy formulation. The uniquely transparent and collaborative nature of our policy formulation process serves not only to inform our policies, but also helps to create a higher level of understanding and dialogue across the corporate governance community.

I submitted my comments in an e-mail with responses to a select number of policies and questions as presented below. I hope readers do the same… of course with your own set of responses. It is great that ISS uses such a transparent process, consistent with what they expect of corporations.

Over 300 respondents weighed in on issues ranging from executive compensation and director independence, to engagement triggers and social & environmental issues. The full results from the survey are posted to ISS’ Policy Gateway.

Please indicate your name and organization for attribution. While ISS will consider all feedback that it receives, comments will not be published without attribution.

Responses From

Board Response to Management Say-on-Pay Vote (U.S.)
Q: Does a support level of less than 70 percent warrant an explicit response from a company to address concerns – i.e., including actions or an action plan? If not, what opposition level warrants an explicit response?
A: Any support level below 70% should elicit a response within the following year as to what actions or adjustments have been taken to address shareowner concerns. The lower the support, the more adjustments should be expected. Failure to provide an adequate response should result in a recommendation to vote against the chair of the compensation committee where support was below 60%. Where support was below 50% and inadequate response is provided, ISS should recommend voting against all members of the compensation committee.

Board Response to Management Say-on-Pay Frequency Vote (U.S.)
We agree with the proposed policies.

Proxy Access Proposals (U.S)
Q: Does your organization intend to generally support or oppose proxy access shareholder proposals? Would your organization’s view differ based on whether the proposal is a binding bylaw resolution versus a precatory (non-binding) one? If so, how?
A: We will generally support both binding and nonbinding proxy access proposals.
Q: If your organization is likely to take a Case-by-Case approach on proxy access shareholder proposals, are there any additional factors not enumerated in ISS’ proposed policy that your organization believes are central to the evaluation of these proposals? If yes, please specify.
A: It is difficult to write an access proposal in 500 words. Therefore, shareowners may need to do more research concerning applicability to specific companies. Additional factors would be “true” independence of the board, trajectory of the business over several years, failure to address failed say on pay votes or to implement successfully passed shareowner proposals, use of a virtual-only shareowner meeting or other behavior that demonstrates a callous disregard for shareowners.
Q: Would your organization look for specific thresholds or limits when evaluating these shareholder proposals (e.g., a minimum or maximum ownership percentage or number of board seats)? If yes, what specific parameters does your organization favor?
A: We are leaning toward thresholds of 1% held for at least 1 year or 50-100 shareowners who have all held $2000 of stock for a year to be able to nominate up to 20% of the board. We would allow multiple non-overlapping groups to make such nominations as long as they are not coordinating efforts, are not 13D filers and are not seeking control as defined in Regulation 405. The lower range of 50 shareowners would apply in the case of corporations with 1,000 shareowners or less. Under our thresholds, there could be an actual change in control if three or more non-overlapping shareowners or groups nominated directors and those directors are elected.
Q: Would your organization oppose the shareholder proposal if it allowed 13D filers seeking a change in control to place candidates on ballots? If no, please explain.
A: Yes. Although not opposed in principle, there would need to be considerable disclosures and other conditions.

Evaluation of Executive Pay (Management Say-on-Pay) (US and Canada)
Q: What additional factors, if any, should ISS consider and display to improve investors’ ability to evaluate companies’ long-term pay-performance alignment?
A: We believe consideration needs to be given to such factors as pay ratios to employees within the some company, industry or generally as well as relative to median pay of other CEOs/NEOs by size and/or industry. We are concerned there has been a never ending ratcheting up of pay as most seek to be above average among peers. Since we believe most CEOs and NEOs are overpaid, we have chosen to simply vote against all pay above median, unless there are special considerations, at least until we see pay begin to ratchet down.

Political Contribution Proposals (US)
Q: Does your organization believe that the proposed ISS policy appropriately and reasonably addresses corporate political contributions disclosure as a proxy issue? Is additional information from companies regarding their political contributions policies and oversight mechanisms sufficient, or would your organization prefer disclosure on specific information about actual political contributions (aggregate or individual) reported in company materials such as on a Web site or in a company report?
A: ISS does not go far enough. We supported the proposal by Northstar Asset Management at Procter & Gamble (PG) that recommends the Board of PG adopt a policy under which the proxy statement for each annual meeting will contain a proposal describing:

  • The Company’s and P&G PAC policies on electioneering and political contributions and communications,
  • Any specific expenditures for these electioneering and political contributions and communications known to be anticipated during the forthcoming fiscal year,
  • The total amount of anticipated expenditures,
  • A list of specific electioneering expenditures made in the prior fiscal year, and
  • Management’s analysis of the congruency of those policies and such expenditures with company values and policies;
  • And providing an advisory shareholder vote on those policies and future plans.

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